(Kitco News) - The gold market is struggling below $4,100 an ounce and could face further selling pressure as the U.S. labor market remains relatively healthy, with fewer American workers applying for unemployment benefits than expected.
Initial claims for state unemployment benefits came in at a seasonally adjusted 194,000 for the week ending October 17, the Labor Department announced Thursday. The number was below expectations, as consensus estimates forecast a steady 200,000 claims. The previous week’s figure was revised up to 200,000.
Jobless claims have fallen to their lowest level since late July.
Spot gold has been on the back foot through most of the European session, and while prices have recovered from their session lows, the market continues to face significant selling pressure. Gold last traded at $4,076 an ounce, down 1.5% on the day.
The four-week moving average for new claims – often viewed as a more reliable measure of the labor market since it flattens week-to-week volatility – dropped to 197,750, following the previous week’s revised 198,500 level.
Analysts have noted that gold remains in a challenging position as persistent inflation has forced the Federal Reserve to adopt a new tightening bias. The latest labor market data gives the central bank room to deal with rising consumer prices.
“Layoffs aren’t picking up, and after PPI at 6.3% that gives the Fed no reason to ease,” said Waleed Said, Technical Analyst at GivTrade.
However, Waleed added that the U.S. labor market also has its limits in the current economic environment.
“The detail most will miss: continuing claims rose to 1.728M, so people who lose their jobs are taking longer to find new ones. Firing is low, but hiring is slowing,” he said.
Said explained that the current environment will remain negative for gold.
“A strong labor print plus a hawkish Fed is pressuring gold even with a war going on, and that tells you rates are driving the market right now,” he said.
Monte Safieddine, Head of Market Research at Capital.com, said that with gold prices below $4,100 an ounce, the market now needs to hold critical support at $4,000 an ounce.
“It is a confidence test. Speculators are trying to defend it because a clean break below would signal that the market has stopped pricing rate relief and started pricing sticky inflation, elevated yields, and a stronger dollar,” he said. “The real risk for gold is that geopolitics is becoming inflationary rather than simply defensive. Any further escalation on the geopolitical front risks pushing oil even higher. Gold is trapped between two opposing forces: fear should support it, but oil-led inflation is giving central banks less room to cut. Unless the geopolitical shock is severe enough to trigger a full risk-off event, the first market reaction may be higher crude and higher yields, not a sustained gold rally.”
