Gold price reversal (XAU/USD) regained momentum on Thursday, trading back in the $2,610 range after briefly dropping due to mixed US inflation and jobs reports. Despite rising inflation pressures, weaker-than-expected labor market data led to speculation that the Federal Reserve may prioritize supporting employment over controlling inflation. This points to a greater chance of an interest rate cut, which is positive for gold prices as lower rates reduce the opportunity cost of holding the non-yielding asset.
Gold Recovers Following Mixed US Data
Gold price reversal initially dipped after the release of the US Consumer Price Index (CPI) report for September. CPI rose by 2.4% annually, slightly below August’s 2.5%, but above market expectations of 2.3%, indicating persistent inflation. Additionally, CPI excluding food and energy climbed to 3.3%, exceeding both the previous month’s 3.2% and expectations, signaling ongoing inflationary pressures.
On the employment front, the story was different. Gold rebounded after US initial jobless claims for the week ending October 8 increased to 258K, up from 225K the previous week and above expectations of 230K. Continuing claims also rose to 1.861 million, higher than the revised 1.819 million from the previous week. This signaled some weakening in the US labor market, which fueled gold’s recovery.
Federal Reserve’s Dovish Outlook Supports Gold
Federal Reserve Bank of San Francisco President Mary Daly mentioned that further rate cuts might be necessary before year-end, prioritizing concerns over the labor market rather than accelerating inflation. This dovish tone, along with market expectations of a 25 basis point rate cut in the upcoming policy meeting, has strengthened the case for gold prices to rise.
According to the CME FedWatch tool, the likelihood of a 25 bps rate cut stands at 89%, while the chances of a larger 50 bps cut remain at zero. The probability of no action at all has decreased to 11%.
Gold Boosted by Safe-Haven Demand Amid Geopolitical Tensions
Safe-haven demand continues to underpin gold prices due to escalating geopolitical tensions. The ongoing conflict between Israel and Lebanon, coupled with concerns about Israel’s potential retaliatory strike on Iran following recent attacks, has kept global markets on edge.
The US government remains in close communication with Israeli officials, pressing them to focus any retaliatory measures on military targets. These geopolitical uncertainties are driving investors toward safe-haven assets like gold.
Technical Analysis: Short-Term Downtrend for Gold
Technically, gold remains in a short-term downtrend after breaking below its long-term trendline. The XAU/USD pair reached support above the key psychological level of $2,600, which provided some relief.
A break below this support level could trigger further declines towards $2,578, where the 200-period Simple Moving Average (SMA) on the 4-hour chart is likely to offer additional support. However, traders should be cautious as the medium and long-term trends remain bullish. A potential reversal could lead to another upward move for gold in the near future.
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