The gold market Has seen some reversals today as overnight gains were wiped out following the surprisingly strong jobs data for January. The market has since recovered, however and is back in positive territory, albeit not by much. Spot gold prices are currently up less than $2.50 per ounce. The important thing today, however, may be the metal’s willingness to hold above the key $1800 level.
The January Non-Farm Payrolls data released this morning showed a much stronger rise in jobs compared to consensus estimates. While estimates were looking for a rise of 150,000 jobs, the report showed that jobs rose by some 467,000. The January unemployment rate was at 4%, and other internal components of the report were also stronger than anticipated. Like it or not, the report may provide some credibility for the Fed and its plans on raising interest rates beginning as soon as next month. The jobs data is definitely hawkish and may back up recent hawkish Fed rhetoric.
Although gold and other markets have plenty of issues to consider currently, central banks and their monetary policies remain at the center of attention. Thursday’s ECB meeting was viewed as being more hawkish, with commentary from its President, Christine Lagarde, being seen as increasingly hawkish. The rise in hawkishness from the ECB seems to be following the recent rise in U.S. hawkishness. If inflation continues to be a problem or increases further, central banks may become even more aggressive both in rhetoric and action. This could potentially lead to a more rapid rise in interest rates than expected or more rate increases than previously thought. Whether central banks hike more, faster, or both, the notion of rising rates could spell trouble for equity markets and risk assets.
The crude oil market may provide gold with a boost in the weeks ahead. Crude is trading higher today to finish off the trading week and is now valued at a seven-year high. With crude now at nearly $92 per barrel, traders are likely eyeing the $100 level as the next stop and prices could see a continued push until they get there.
The daily charts show a slight bullish advantage. The bulls will need to target first resistance around $1825 followed by a test of resistance in the $1850 area. The bears are looking for a decline to the $1775 level followed by a run lower to the December lows.
With the yellow metal holding above the key $1800 level, the bulls will need to act and act soon to avoid a bearish decline. The patience of longs within the market could eventually run out, otherwise, and many could throw in the towel if gold is unable to make any further advancement. With interest rates set to possibly rise as soon as next month, volatility could possibly see an increase as investors and traders square positions ahead of any moves by the Fed. The gold market has risen during past tightening cycles, however, and there is no reason for it not to do the same during this cycle.