Gold trading reminder: U.S. employment data is improving, gold prices remain above the 21-day moving average, waiting for the "non-agricultural" decisive battle

On Thursday (January 4), the benchmark 10-year U.S. Treasury bond yield rose by more than 1% after upbeat U.S. employment data, which prevented gold prices from building bullish momentum. After rising above US$2,050 per ounce, the spot gold price fell slightly to around US$2,036 per ounce, which happened to be the support of the 21-day moving average. Although it gave up the gains of the previous few trading days, it finally rebounded to 2,040 at the close. range, closing at $2,043.42 per ounce, an increase of 0.09%. COMEX gold futures rose 0.4% to close at $2,050 per ounce; COMEX silver futures rose 0.1% to close at $23.187 per ounce.

[Market News Analysis]

Gold has seen strong gains in the final days of 2023 as optimism grows that the Federal Reserve could begin cutting interest rates as early as spring 2024.

But at the start of the new year, gold prices have been hit by some profit-taking, while traders have also lowered their expectations for an early interest rate cut by the central bank to some extent.

Gold prices gave up all of their intraday gains as U.S. labor market conditions generally improved. U.S. Automatic Data Processing (ADP) employment change data for December and weekly jobless claims data for the week ended December 29 remained positive. U.S. private employers hired 164,000 workers, compared with expectations for 115,000 and the previous figure of 103,000. The Labor Department reported that initial jobless claims fell to 202,000, compared with the consensus estimate of 216,000 and the previous reading of 220,000.

In the U.S. bond market, Treasuries fell broadly as traders lowered their expectations for how much the Federal Reserve will cut interest rates throughout the year after stronger-than-expected labor market data. The 2-year Treasury bond yield rose 5.4 basis points to 4.3845%; the 5-year Treasury bond yield rose 7.7 basis points to 3.98%; the 10-year Treasury bond yield rose 8.3 basis points to 3.9988%.

The Fed acknowledged that it has made progress in lowering inflation by raising interest rates over the past year. But some policymakers still point to the need for tighter monetary policy in the short term, citing increased uncertainty about the U.S. economic outlook. After the release of the minutes of the Federal Reserve meeting, the prospect of the Federal Reserve cutting interest rates increased, and the overall outlook for gold prices was optimistic. Although uncertainty over when exactly the Fed will announce a rate cut is likely to keep gold prices highly volatile.

According to CME's "Fed Watch" data, the probability that the Fed will keep interest rates unchanged in the range of 5.25%-5.50% in February is 93.3%, and the probability of cutting interest rates by 25 basis points is 6.7%. The probability of keeping interest rates unchanged by March next year is 35.4%, the probability of a cumulative 25 basis point interest rate cut is 60.4%, and the probability of a cumulative 50 basis point interest rate cut is 4.2%.

While gold did see some weakness in early 2024, it was still up over 10% in 2023. Gold is expected to benefit from interest rate easing this year, given that high interest rates drive up the opportunity cost of buying gold.

Although the U.S. economy is cooling, inflation remains above the Federal Reserve's 2% annual target. The labor market is also relatively strong, and Friday's nonfarm payrolls data is expected to provide more clues in this regard. Expectations for key non-farm payrolls data have made investors cautious about buying outside the U.S. dollar, creating more headwinds for non-yielding assets such as gold.

[Friday’s trading day focuses on financial data and events (Beijing time)]

① 08:30 Japan’s December service industry and comprehensive PMI final values;

② 13:00 India December S&P Global India Services and Composite PMI;

③ 18:00 Eurozone initial CPI value in December;

④ 21:30 US December non-farm employment report (including employed population, unemployment rate, average hourly wage), Canada December employment report;

⑤ 23:00 US December ISM non-manufacturing PMI, US November factory orders, US November final durable goods orders;

⑥ At 02:30 the next day, Barkin, President of the Federal Reserve Bank of Richmond (2024 FOMC Voting Committee), spoke at the Maryland Bankers Association.