(Kitco News) - Gold is gaining new momentum heading into the weekend as the demand for safe-haven assets grows due to increasing geopolitical instability in the Middle East, overshadowing strong labor market data.
Gold faced some initial selling pressure Friday morning after data from the Bureau of Labor Statistics showed that robust economic activity created 254,000 U.S. jobs last month. September’s nonfarm payrolls data significantly beat expectations for a gain of 147,000.
At the same time, wages rose more than expected, increasing by 0.4% last month.
Ahead of the report, markets were pricing in a 30% chance that the Federal Reserve would cut interest rates by 50 basis points next month. However, those expectations have now completely evaporated. Despite the U.S. dollar gaining strength due to shifting monetary policy expectations, gold has held its ground.
December gold futures last traded at $2,669.10 an ounce, roughly unchanged from last week.
Analysts note that economic data has taken a backseat to geopolitical uncertainty.
“Gold is holding up for one reason and one reason only—the risk of a weekend event in the Middle East,” said Ole Hansen, head of Commodity Strategy at Saxo Bank.
Jesse Colombo, an independent precious metals analyst and founder of the BubbleBubble Report, said that while gold has been well-supported by generally elevated geopolitical tensions, it is experiencing increased bullish volatility due to a heightened sense of worry.
Israel's war in the Middle East continues to escalate as its army strikes Hamas in Gaza and Hezbollah in Lebanon, and there are concerns that Iran could be drawn even further into the conflict.
Iran is Hezbollah's primary backer and has provided weapons and billions of dollars to the group over the years. Earlier this week, Iran fired 180 ballistic missiles into Israel, all of which were intercepted.
The world is now left wondering how Israel will retaliate against Iran.
“Nobody wants to be short on gold ahead of the weekend,” said Colombo.
With a relatively light economic calendar next week, Lukman Otunuga, Manager of Market Analysis, said that gold will be caught between resilient economic data and chaos in the Middle East.
“Looking at the technical picture, gold remains in a range on the daily charts, with support at $2,630 and resistance at $2,675,” he said. “A breakout could be on the horizon, with the events in the week ahead acting as potential catalysts. These range from ongoing geopolitical tensions to key U.S. data, including the U.S. CPI, and speeches by numerous Fed officials.”
Although gold remains below $2,700 an ounce, Colombo noted that the fact that dips continue to be bought signals that gold remains in a strong bull market.
He added that, along with rising geopolitical uncertainty and the Federal Reserve’s new easing cycle, global liquidity is increasing, making gold an attractive asset. He also pointed out that gold remains appealing as a monetary metal as global debt continues to rise.
“There isn’t just one factor driving this market, which is why this rally has been unstoppable,” he said. “Many people have said it’s overbought from a technical perspective and that we need a 5% or 10% decline, yet all the price has done is trade sideways. That, to me, is extremely bullish.”
Although markets have priced out a 50-basis point cut next month, analysts say the Federal Reserve’s overall monetary policy stance remains bullish for gold.
“The overall direction remains the same—the market believes the Fed will continue to cut rates until they get back down to around 3%,” said David Morrison, Senior Market Analyst at Trade Nation, in a comment to Kitco News. “This should support gold. And the good thing is that it won’t matter whether the Fed is cutting for good reasons (because it believes inflation is under control) or bad ones (because the economy is heading into recession); gold should remain in favor under both scenarios until the current bull market runs its course.”
Although the economic calendar isn’t particularly busy next week, the biggest risk event will be the U.S. Consumer Price Index for September. According to economists, markets will be eager to see if inflation pressures continue to recede, which would support the Federal Reserve’s easing cycle.
Markets will also receive the minutes from the Federal Reserve’s last monetary policy meeting.
Economic data to watch next week:
Wednesday: Minutes from the September FOMC meeting
Thursday: US Consumer Price Index, Weekly jobless claims
Friday: US Producer Price Index, University of Michigan preliminary consumer sentiment
