(Kitco News) - The gold market does not need lower interest rates to move higher, but dovish market expectations following disappointing labor market data are adding to the bullish momentum.
Gold prices are testing initial resistance at $4,500 an ounce after the U.S. Bureau of Labor Statistics reported weaker-than-expected employment growth in December. The U.S. economy created 50,000 jobs, while economists were expecting to see gains of 66,000.
At the same time, the unemployment rate dropped to 4.4%, and wages increased by 0.3%. Although the labor market is slowing, economists note there is still enough resilience to support economic activity.
“This mix gives the Fed confidence that the labor market is cooling on schedule. For investors, it reinforces the case for rate cuts in early 2026,” said Gina Bolvin, President of Bolvin Wealth Management Group, in a note.
Although there may not be an urgent need to cut rates later this month, analysts note that the path lower will provide further underlying support for the precious metal.
Neil Welsh, Head of Metals at Britannia Global Markets, said the gold market is becoming increasingly comfortable with the idea of a cooling labor market and a Fed that won’t need to tighten further.
“The combination of weaker job creation, a dip in the unemployment rate and a softer dollar has given gold fresh support, and while this doesn’t guarantee an immediate retest of record highs, it reinforces the broader uptrend,” he said. “Sticky inflation may slow the pace of rate cuts, but it’s unlikely to stop them altogether, meaning real-yield pressure on gold should continue to ease.”
Although gold prices can go higher, some analysts note that with no urgent need to cut rates, gains could be limited in the near term.
The biggest risk for gold next week will be Tuesday’s inflation data. Currently, markets are not expecting the Federal Reserve to cut interest rates later this month, but there is a risk that sticky inflation could push the next cut past March.
Despite the risks, analysts expect a weakening economy and cooling labor market to overshadow higher but relatively benign inflation.
"Today's softer-than-expected NFP report—adding just 50,000 jobs with downward revisions—bolsters gold's bullish case by fuelling expectations for Fed rate cuts in 2026, weakening the dollar and yields,” said Aaron Hill, Chief Market Analyst at FP Markets. “However, next week's CPI data poses risks: sticky inflation above 2.8% could temper easing bets and trigger a 1–2% pullback. Post-NFP, the Fed retains leeway to prioritize labour weakness over mild price pressures, maintaining a constructive environment for bullion amid geopolitical and debt concerns.”
Hill added that he could see gold prices trading between $4,550 and $4,600 in the near term.
At the same time, many analysts expect that, regardless of interest rates, gold will go higher.
Michael Brown, Senior Market Analyst at Peppestone, said that gold’s negative correlation with interest rates remains a key feature in the marketplace.
“We still see very little correlation between precious metals and rates, so the policy outlook, which hasn’t materially changed to a significant extent, might not matter all that much in any case,” he said. “I’m still a gold bull, though, with a break above $4.5k/oz likely enticing further longs to enter the fray, and putting us on a path to fresh highs.”
Analysts also expect that gold’s technical momentum has become self-sustaining. David Morrison, Senior Market Analyst at Trade Nation, doesn’t see gold’s rally ending any time soon.
“Gold reacted positively to the news despite a resumption in dollar strength once the initial knee-jerk reaction settled down. Overall, I think traders were just relieved to get the data out of the way with no big surprises. This unblocked the path, allowing the gold rally to continue,” said Morrison. “It looks as if gold has the potential for further upside, no matter what the data says, and no matter what the dollar does from here. Granted, another drop in inflation and further dollar weakness would support gold prices. But it looks to me as if gold wants to go higher regardless."
Lukman Otunuga, Senior Market Analyst at FXTM, said that he also sees gold prices pushing higher next week.
“Gold is on breakout watch with a solid move above $4,500, opening the doors to the all-time high at $4,549.92 and beyond,” he said. “Any signs of still-sticky inflation could shave the odds of the Fed cutting rates anytime soon, which may enforce fresh pressure on gold. Still, other fundamental forces in the form of central bank buying and geopolitical tensions may limit downside losses.”
While the release of the U.S. Consumer Price Index will be the main economic event next week, retail sales data and regional manufacturing data could create some short-term price volatility.
Economic data to watch next week:
Tuesday: US CPI, US New Home Sales
Wednesday: US PPI, US Retail Sales, Existing Home Sales
Thursday: US jobless claims, Empire State Survey, Philly Fed Manufacturing Survey
