【TMGM Financial Recap】Gold Plunges More Than 3% for the Week as Even a Nonfarm Payrolls Miss Fails to Rescue Bulls; $4,000 Could Become a Key Level!

The most dramatic moment last Friday came from the U.S. Department of Labor. Nonfarm payrolls increased by just 29,000 in September, well below economists’ forecast of 90,000; August’s gain was revised down from the previously reported 162,000 to 133,000; and the unemployment rate rose to 4.2%, above economists’ expectation of 4.1%. Following the release, the market’s initial reaction was to buy gold. Spot gold briefly rose more than 1% as investors immediately reduced their bets on a Federal Reserve rate hike. However, the rally was short-lived. As Treasury yields reversed their decline and moved higher, the dollar also recovered its losses, and gold quickly surrendered its gains and turned lower.

Gold bulls may be reluctant to get too excited at this point, knowing that the Fed retains a hawkish bias. Gold’s performance over the coming months will depend largely on how much potential weakness in the labor market the Fed is willing to tolerate while remaining firmly committed to curbing U.S. inflation. In other words, weak employment data has not changed the Fed’s policy framework; it has merely reduced the tail risk of an October rate hike, which is insufficient to sustain a gold rally.

The main forces weighing on gold remain the dollar and Treasury yields. Last Thursday, U.S. 10-year and 30-year Treasury yields reached their highest levels since 2002. On Friday, yields initially fell following the weak jobs report before rising again. The 10-year yield climbed 4.72 basis points to 5.281%, while the 30-year yield rose to 5.6321%. The 10-year yield increased for a fifth consecutive week, while the 30-year yield rose for a second consecutive week.

For non-yielding gold, a stronger dollar makes purchases more expensive for buyers using other currencies, while elevated Treasury yields increase the opportunity cost of holding gold. From a broader perspective, gold has fallen more than 20% since the U.S. and Israel’s war against Iran began in late February, as markets expect inflation triggered by the conflict to keep interest rates higher for longer.

The Fed had already raised interest rates at the conclusion of its September policy meeting and signaled further hikes. Chair Warsh also reiterated the independence of monetary policy, despite repeated calls from U.S. President Trump to lower borrowing costs. The latest inflation data came in below expectations, and at least two senior Fed policymakers opposed another rate hike in October, reinforcing investors’ bets that rates will remain unchanged this month.

Market Insight:

The September ISM Services Purchasing Managers’ Index will be released this Monday. Given the recent weakness in employment data, economists will pay particular attention to its employment component. On Wednesday, investors will closely examine the minutes of the Fed’s September monetary policy meeting for clues about the balance between hawkish and dovish views within the committee, helping them assess the potential direction of gold prices.