Gold surges on weak US jobs data, ahead of FOMC decision

Gold is trading at $2052.99 per ounce at the time of writing. The price of the precious metal surges by 0.77% ahead of the Federal Reserve’s monetary policy announcement, with the focus mainly on the bank’s future interest rate guidance.

Expectations for early rate cuts by the Fed increased as a result of the US Automatic Data Processing (ADP) reporting a weaker labour demand than expected. While investors awaiting the Fed to announce its monetary policy decision in January, the first such decision in 2024, market volatility is predicted to stay elevated.

Investors’ attention will be directed on the central bank’s interest rate guidance, which is likely to influence actions in the foreign exchange market, as the Fed is anticipated to keep interest rate unchanged for the fourth consecutive meeting. With prior guidance indicating 75 basis points of rate reductions in 2024, the market is expecting the Fed to start reducing rates in May.

Nonetheless, some Fed officials have suggested holding interest rates high until they are certain that the underlying inflation rate would promptly return to the Fed’s target of 2%.

The US Dollar Index declines vertically following positive private job data, while the price of gold climbs vertically to $2,050. Awaiting the Federal Reserve’s monetary policy announcement, investors will be watching to see how the dismal labour market data will affect the outlook for interest rates. According to the CME Fedwatch tool, the Fed is likely to begin its rate-cutting campaign in May rather than March.

This week’s schedule of US economic figures is expected to keep investors occupied. On Thursday, the Manufacturing PMI will be released by the ISM agency, and on Friday, official employment figures will be made available. Global geopolitical concerns, which include US President Joe Biden’s threat to exact revenge for aerial drone attacks on US locations close to northeastern Jordan, continue to support bullion.

Technically, when the US dollar retreats following the US ADP’s January labour demand report, the price of gold rises to almost the critical resistance level of $2,050. Ahead of the Fed’s policy announcement, the price of gold is expected to rise.