- Gold price prints a fresh all-time high of above $2,180 amid multiple tailwinds.
- The US Dollar weakens on slower wage growth and higher Unemployment Rate in February.
- US Treasury yields plunge as Fed Powell delivers a slight dovish guidance on interest rates.
Gold price (XAU/USD) extends its upside in Friday’s early New York session after a higher Unemployment Rate for February. The United States Bureau of Labor Statistics (BLS) has reported that the Unemployment Rate rose to 3.9% compared to expectations, and the former reading was 3.7%. However, Nonfarm Payrolls (NFP) for February were higher at 275K against expectations of 200K, but remained lower than the prior reading of 353K
The inflation outlook has slightly cooled as Average Hourly Earnings grew slower than market participants anticipated. On a monthly basis, wages grew slightly by 0.1% against a 0.6% increase in January. Investors projected that wage growth would have halved to 0.3%. Annual wage growth decelerated to 4.3% from expectations and prior reading of 4.4%. For January, wage growth has been revised down from 4.5%.
A sharp slowdown in wage growth is expected to prompt market expectations for the Federal Reserve (Fed) to reduce interest rates in the June policy meeting. The precious metal rallies to a fresh all-time high above $2,180 as yields on 10-year US bonds fell to 4.04% after the release of the US NFP data.
In the European session, the precious metal also exhibited strength as Fed Chair Jerome Powell indicated the central bank is close to gaining evidence for inflation returning sustainably to the 2% target. In his two-day testimony before Congress, Jerome Powell said: “We are waiting to become more confident that inflation is moving sustainably down to 2%. When we do get that confidence, and we’re not far from it, it will be appropriate to begin to dial back the level of restriction so that we don’t drive the economy into recession.”
Meanwhile, Slower wage growth and a high jobless rate have elevated selling pressure on the US Dollar. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, has refreshed its seven-week low around 102.40.
Daily digest market movers: Gold price rallies as US yields plunges
- Gold price prints a fresh all-time high near $2,180 on downbeat US jobless rate, slightly dovish commentary from Federal Reserve Chair Jerome Powell, and geopolitical tensions.
- In his two-day testimony before Congress, Jerome Powell said policymakers are not far from gaining confidence that inflation will return to the 2% target. He recognized the need to dial back the restrictive monetary policy stance to prevent the economy from falling into a recession.
- The rally in the Gold price indicates that the slight dovish commentary from Fed Powell has built confidence among investors that rate cuts will be announced sooner. The expectations for the Fed reducing interest rates in the June policy meeting remain firm. The Fed is expected to keep interest rates unchanged in the range of 5.25%-5.5% in the March and May policy meetings.
- Meanwhile, New York Fed Bank John Williams said in an interview with LSE in the late American session that restrictive monetary policy had built downward pressure on the aggregate demand and inflation expectations have come down a bit.
- In the Middle East region, the death of three civilians on a merchant ship flowing from the Red Sea by Iran-backed-Houthis has increased the risk of escalating geopolitical tensions in the region.
Technical Analysis: Gold price climbs above $2,180
Gold price carry-forwards its winning streak for an eighth trading session on Friday. The precious metal has refreshed its all-time highs above $2,180 after breaking above the horizontal resistance line plotted from December 4 high near $2,145.
The Gold price is trading in unchartered territory and is expected to remain broadly bullish. However, a corrective move in the asset cannot be ruled out as momentum oscillators have reached the overbought territory. The 14-period Relative Strength Index (RSI) has reached 83.00, well above the 70.00 threshold, which signals overbought levels and points to some correction ahead.
On the downside, December 4 high near $2,145 and December 28 high at $2,088 will act as major support levels.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.