Gold prices recovered some of their losses from the previous week on Friday, making their weekly performance positive for the week. Despite this, the yellow metal is still on track to post its seventh straight monthly loss.
Although the underlying picture is still negative in the face of rising rates, the failure to surpass the 2022 low from last month is encouraging. Bond traders should be pessimistic until a clear Federal Reserve policy pivot is visible. Next week, traders might opt to sell into strength.
The price of gold is closely monitored in global financial markets. Up to the Gold Standard's repeal, which resulted in the expansion of a fiat currency system where paper money doesn't have an implicit backing with any physical form of monetization, gold served as the cornerstone of economic capitalism for hundreds of years.
While the fact that gold is continuing to trade above its September low amid rising Treasury yields is promising, the bond selloff continues to weigh on gold prices. The policy-sensitive US 2-year yield surpassed the 4.6% threshold last week as Federal Open Market Committee members expressed their support for more rate increases.
Lisa Cook, governor of the Federal Reserve, stated that the rate of inflation is stubbornly and unacceptably high. According to Fed funds futures, rate traders are pricing a 100% chance for a 75-basis point hike at the November 02 FOMC meeting and a 13% chance for a 100-bps hike.
Furthermore, according to U.S. economic data, the labor market is still strong, which is worrisome for gold dealers. This is so that the Fed can detect some relaxation in the labor market, which should assist to lower the inflation that has been consistently high. Initial jobless claims in the US for the week ending October 15 came in at 214k.
After a week of aggressive Fedspeak, the FOMC's blackout period started on Saturday. Updated S&P Global purchasing managers' indexes and information on weekly unemployment claims are included in this week's statistics. The October manufacturing PMI is predicted to fall from 52.0 to 51.0, and the services PMI remains practically constant at 49.4. Amidst aggressive rate hikes, America's manufacturing sector has been remarkably robust.
The Federal Reserve reports that factory production utilization reached its highest level since 2000, indicating strong demand. Despite this, the manufacturing PMI appears set to surpass expectations. This would probably solidify already high-rate rise bets. Given the current selloff, a relief rally is not completely out of the question, but gold is likely to tumble under such a scenario. If a dovish attitude toward rates were to alter, it might be wise to sell into gold's strength outside of that development.
