Strong US labor market data takes some shine off gold

Robust US labor market data took some of the shine off gold on Friday.

Gold prices on COMEX fell after the release of the US non-farm payroll data and the unemployment rate. However, prices have recovered somewhat, and are now in the green. 

Gold prices have struggled throughout the day as positive labor market data from the US could prompt the Federal Reserve from cutting interest rates sharply. 

Lower interest rates boost demand for gold as the precious metal is a non-yielding asset, unlike bonds. 

At the time of writing, the price of COMEX gold was $2,686.50 per ounce, up 0.2% from the previous close. 

Strong US labor market data dims gold's appeal

The US Bureau of Labor Statistics’s non-farm payrolls report showed that the country added 254,000 new jobs in September.

This was higher than the upwardly revised 159,000 in August and above economists’ expectations of 140,000. 

Meanwhile, the US unemployment rate fell to 4.1% in September, which was below the 4.2% recorded in August. 

Additionally, average hourly earnings in the US rose 4.0% annually from a revised up 3.9% in August and was above expectations of 3.8%. 

A strong labor market may dissuade the Fed from cutting rates sharply

The positive labor market data from the US indicate that the economy is still resilient and in much better shape than previously anticipated. 

Fxstreet.com said in a report:

At its September policy meeting, the Fed cut interest rates for the first time in four and a half years by 50 basis points. 

The market since then was hoping for a similar reduction in rates at the November policy meeting of the US central bank. 

Safe-haven demand supports gold prices 

At a time when geopolitical tensions have escalated in the Middle East, safe-haven demand for assets such as gold has increased. 

The world expects a response from Israel to Iran’s attack on Tuesday. Tensions could escalate further as a result. 

Gold prices spent most of the day in the red, but prospects of further escalations in tensions in the Middle East led the precious metals to recoup all of the losses on Friday.

“The yellow metal is further supported by the overall trend lower in global interest rates, which enables Gold to retain its attractiveness as a portfolio asset for investors,” Fxstreet.com said. 

Outlook for gold prices

According to ANZ Research, disinvestment in gold-backed exchange-traded funds continues and speculative positions have increased. 

“Lean levels of investment in gold are a potential driver, as they limit the scope for heavy liquidation and suggest the potential for fresh buying,” the research firm said in a report. 

As high prices keep physical demand for gold at bay, investment demand could be crucial to mitigate such challenges. 

ANZ Research said:

According to Fxstreet’s editor Joaquin Monfort, a break below $2,680 per ounce would lead COMEX gold prices to fall towards $2,625 an ounce.

A break below this would prompt prices to find support at $2,600, he said. 

On the upside, a rise above $2,673 an ounce would lead gold prices to climb towards a record high of $2,700 per ounce.