Gold After Weak Jobs Report: $4,000 Zone in Focus
Gold ends near $4,140 despite weak US jobs data. Yields and the Fed path weigh; these are the levels that matter next.
Key Takeaways
- Gold slips to about $4,140 despite a weak US jobs report and is down over 3 percent for the week.
- The odds of an October Fed hike fall to roughly 22 percent, but December stays priced in.
- Key levels: $4,200 on the upside and the $4,000 zone on the downside.
A jobs report that misses expectations this clearly should have lifted gold. On Friday the metal briefly rose above $4,200, then gave the gains back and ended the week near $4,140. Gold is on track for a second straight weekly loss.
The data is weak, yet gold turns lower
The US economy added only 29,000 jobs in September. According to Kitco, economists had expected about 89,000. The unemployment rate rose to 4.2 percent against a forecast of 4.1 percent, and hourly earnings grew just 0.1 percent versus 0.3 percent expected. Downward revisions followed: August landed at 133,000 instead of 162,000, July at 21,000 instead of 31,000.
At first the market reacted by the book. Spot gold jumped about 1 percent to $4,223 and the dollar softened. Artem Bakushev of Monaxa told Kitco that traders are now pricing in a policy error, because the Fed held rates high for too long.
The enthusiasm did not last. As Kitco reported in the evening, gold turned negative and recently traded near $4,142, down 0.83 percent. Silver lost 1.04 percent to about $60.23. The reason: the yield on 10-year US Treasuries recovered after an initial dip to roughly 5.25 percent, and the dollar stayed firmer on the week. For a metal with no yield, that makes the alternative more attractive.
Why the Fed is still in play
The October hike bet dropped sharply, from around 70 percent early in the week to about 22 percent. A December move remains on the table, though, and that is what supports yields.
Bill Adams, chief economist at Fifth Third, does not see the report as weak enough to shift the Fed's focus away from inflation. In his view, September CPI and PPI data, fuel prices and geopolitics ahead of the late-October meeting carry more weight. Phillip Streible of Blue Line Futures points to GDP growth of 2.2 percent and sees no stagflation; in this environment, he says, he cannot be bullish on gold.
Energy prices matter as well. Brent recently traded near $101 and WTI around $90.70. Lower oil takes some pressure off inflation, but the unresolved situation around the Strait of Hormuz keeps part of the safe-haven demand alive. For gold, the effect is mixed.
What momentum says
Momentum signals a mixed picture. In our snapshot at $4,172, the one-hour timeframe shows bearish, the four-hour neutral, the daily bearish and the weekly neutral. Short- and medium-term pressure to the downside dominates, while the weekly picture has not yet picked a direction.
Scenarios
If gold manages a weekly close above $4,200, the 100-day moving average at $4,280 comes into reach, according to Lukman Otunuga of FXTM. Below $4,200, a slide back toward $4,100 looms.
If $4,149.83 breaks, Kitco names $4,110.87 as the next support, followed by $3,942.10. David Morrison of Trade Nation considers a test of the $4,000 zone possible, but sees good odds of a base forming there.
Next week's catalysts are the ISM services index on Monday, the Fed minutes on Wednesday, weekly jobless claims on Thursday and the University of Michigan consumer sentiment survey on Friday.