Gold’s ‘Golden Question’: Is $2,000 Nearer Than Ever?

Other things need to happen, too, if gold is to advance to the 2K mark.

Among them are US jobs numbers for January, which need to come in meaningfully lower than expected to create some ding at least in employment and wage security, which the Fed suggests are its biggest two headaches in fighting inflation.

Ideally, no policymaker would wish ill on the nation’s labor market. The Fed isn’t doing that, of course, but it wishes for an easing of things that are a little “too good” now for the economy’s good — in this case, unemployment at more than 50-year lows and average monthly wages that have grown without stop since March 2021. Such job security and earnings have cushioned many Americans from the worst price pressures since the 1980s and encouraged them to continue spending, further feeding inflation.

“Although the pace of job gains has slowed over the past year and nominal wage growth has shown some signs of easing, the labor market continues to be out of balance,” said Fed Chair Jerome Powell after announcing a 25-basis point rate hike for February, the central bank’s smallest rate increase in a year.

The Fed has a particularly delicate job in trying to balance jobs with inflation. Both are top priorities for the central bank, which is mandated with ensuring “maximum employment” through a jobless rate of 4% or below and keeping inflation manageable. It did alright on the first and splendidly with the second for over a decade, when prices expanded at less than its target of 2% per annum.

Since the COVID-19 outbreak, the situation has reversed. The central bank has outperformed its jobs mandate as the labor market has grown by leaps and bounds since the pandemic. But it has done miserably in fighting inflation as trillions of dollars in COVID relief spending pumped up the economy. Inflation, as measured by the Consumer Price Index, hit four-decade highs in June when it expanded at 9.1% yearly. In December, it grew at 6.5% per annum, its slowest since October 2021. Yet, that was more than three times the Fed’s target.

Wall Street’s economists are expecting the so-called nonfarm payrolls report for January, due on Friday, to show a creation of 190,000 jobs versus the 223,000 in December.

Data-wise, the Labor Department revealed that jobless claims for the week ending on Jan. 28 fell to 183,000, some 3,000 three below last week’s 186,000 and well below the forecast 200,000. The data is evidence of labor market resilience.

Taken together with Wednesday’s JOLTs report that showed vacancies improving and an ISM report that stated that manufacturers “are not substantially” reducing their personnel, it suggests a jobs market still stronger than what the Fed likes.

These were among the reasons for gold’s return to below $1,950 in intraday trading over the past 24 hours. The retreat could deepen, or gold could break, depending on the nonfarm payrolls report.

The Dollar Index has lost more than 9% since September against the six currencies it is pitted against, reaching a 10-month low of 100.68 in the previous session.

The U.S. currency’s swoon has been a boon for gold instead, sending it to nine-month highs.

For gold to gain, the dollar has to ideally continue its decline, and this could be contingent on the nonfarm payrolls report.

Dixit analyzes:

“If the NFP numbers turn bad for the dollar, a staggering break below 101.30 may be followed by a decline towards 100.30. But in any case, if the dollar manages to make a sustained break above 101.96, it could be followed by a 102.45-102.65 horizontal resistance zone. A further up-leg will likely begin for 103.50.”