Gold began last week under selling pressure, falling around $1620 on Monday before making a comeback and closing four consecutive days in positive territory. The volatility in global bond markets induced by the UK gilt sell-off earlier this week weighed on low-yielding gold. With the benchmark 10-year US Treasury bond rate approaching 4% on Monday, Gold fell to its lowest daily close since March 2020 at $1622.
The Bank of England (BoE) intervened in the gilt market on Wednesday, causing global bond yields to fall sharply. The Bank of England indicated that it will make temporary purchases of long-term government bonds in order to restore market functioning. The 10-year US T-bond yield fell more than 5% as the 10-year UK gilt yield fell 10%, allowing inversely-correlated gold to gain bullish momentum. Gold gained about 2% in a single day, the most since late March.
The Bank of England’s action diverted market attention away from the greenback, paving the way for an overdue fall in the US Dollar Index (DXY). With the dollar under intense negative pressure, the DXY dropped more than 2% in the second half of the week. During Asian trading hours on Friday, statistics from China revealed that the NBS Manufacturing PMI moved into expansionary territory over 50 in September from 49.4 in August, propelling gold to its highest level in a week above $1670.
The September jobs report will be released by the US Bureau of Economic Analysis on Friday. Nonfarm payrolls are predicted to expand by 250,000, following a 315,000 gain in August. Weekly Initial Jobless Claims have been steadily dropping since mid-summer, but employment components of August PMI surveys revealed a considerable slowdown in private-sector employment growth. According to the most recent Summary of Projections (SEP), FED officials anticipate an unemployment rate of 3.8 percent by the end of the year and 4.4 percent by the end of 2023. Policymakers have stated unequivocally that they will prioritise combating inflation and will continue to raise interest rates unless they see indicators of unemployment steadily growing. As a result, September labour market data are unlikely to have a significant impact on the Fed’s policy outlook.
Despite mounting recession fears and geopolitical risk, gold has struggled to gain substantial traction in the face of the Federal Reserve’s resolve to keeping inflation under control. Investors are optimistic that the US central bank will continue its aggressive rate hike cycle, and have priced in the probability of another 75 basis point rate hike in November. The bets were reaffirmed by the release of US Personal Consumption Expenditures (PCE) data on Friday, which continues to serve as a headwind for non-yielding gold.
Gold will find immediate resistance at $1680, where the 20-day simple moving average is positioned. If the yellow metal rallies above that level and begins to use it as support, it might target $1690 (Fibonacci 38.2% retracement of the most recent downturn) and $1700. (psychological level. On the downside, $1665 (Fibonacci 23.6 percent retracement) corresponds to the first support level before $1650. (static level). A daily close below the latter might be interpreted as a severe negative development, causing Gold to fall toward the downtrend’s endpoint below $1620.