Gold: As FOMC members abstain, gold prices are watching US PMI and jobless claims data.

Oct 23, 2022
VOT Research Desk

Market Insights, Considerations & Analytics

Fundamental Gold Price Prediction: Bearish

Last week, gold prices decreased amid rising Treasury yields and hawkish Fed rhetoric.

Rate traders are focused on economic data during a FOMC blackout period.

US PMIs and information on weekly unemployment claims are being monitored by gold prices.

Although the yellow metal is still on track to post its seventh monthly loss in a row, gold prices cut losses on Friday and improved its weekly performance for the week, retracing some of its losses from the previous week. Despite the fact that the fundamental outlook remains bearish and rates are rising, the failure to break the 2022 low last month is encouraging. Bond traders should remain bearish until a concrete policy shift by the Federal Reserve becomes apparent. Next week, traders may decide to sell into strength.

While the bond selloff continues to be a problem for bullion prices, it is encouraging to see gold remain above its September low as Treasury yields reach new highs. As FOMC members weighed in on the need for further rate hikes, the policy-sensitive 2-year US yield climbed above the 4.6 percent threshold last week. According to Federal Reserve Governor Lisa Cook, inflation remains unacceptably high and steadfast. According to Fed funds futures, rate traders are pricing a 100% chance for a 75-basis point rate hike at the FOMC meeting on November 2 and a 13% chance for a 100-bps hike.

Additionally, US economic data suggested that the employment market is still resilient, which is a depressing sign for gold traders. This is due to the fact that the Federal Reserve wants to see some softening in labor force numbers, which should help lower inflation, which has been high for years. The number of initial jobless claims filed in the United States for the week ending October 15 was 214, beating the Bloomberg consensus forecast of 230k but falling from 226k the week before.

After a week of hawkish Fedspeak, the FOMC blackout period began on Saturday. S&P Global’s most recent purchasing managers’ indexes and weekly jobless claims data are included in this week’s data. Analysts anticipate that the services PMI will remain nearly unchanged at 49.4, while the manufacturing PMI will fall to 51.0 from 52.0.Despite aggressive rate increases, America’s factory sector has been surprisingly robust.

Daily Chart of Gold against 2-Year Treasury Yield
 

The Federal Reserve says that factory production utilization reached its highest level since 2000, which suggests that demand is healthy. However, the manufacturing PMI appears well-positioned to outperform estimates. That would probably bolster already high-priced bets on a rate hike. Even though a relief rally cannot be ruled out in light of the recent selloff, gold is likely to fall under that scenario. If a dovish sentiment shift for rates were to occur, the smart move might be to sell into gold strength outside of that.

Weekly Simple Moving Averages