Gold slips as Dollar steadies, hawkish Fed Logan caps gains
- XAU/USD falls as Dallas Fed’s Logan flags inflation above target, urges vigilance.
- Government shutdown halts BLS releases, though September NFP data likely secured.
- Markets still price in 99% odds of October Fed rate cut, leaving Gold supported despite short-term US Dollar strength.
Gold price retreats during the North American session on Thursday as the Greenback recovers some ground, trimming some of its weekly losses after Dallas Fed President Lorie Logan delivered a hawkish message. At the time of writing, XAU/USD trades at $3,844, down 0.50%.
Bullion dips below $3,820 after Logan warns on inflation trend
The Dallas Federal Reserve's Lorie Logan said that inflation is running above target and trending upward. However, she acknowledged risks on both sides of the dual mandate, saying that the labor market appears fairly balanced but slowing.
In the meantime, US economic data releases by the Bureau of Labor Statistics (BLS) will be halted due to the government shutdown. Senator Elizabeth Warren said that data for the September Nonfarm Payrolls report had been collected and is still likely to be released, according to CNN.
Challenger Job Cuts for September showed that companies announced plans to fire 54,064 people, less than August’s 85,979. Andy Challenger, senior vice president at Challenger, Gray & Christmas, said, “Right now, we’re dealing with a stagnating labor market, cost increases, and a transformative new technology.”
The data further justifies the need for further interest rate cuts by the Federal Reserve (Fed). Market participants are pricing in a 99% chance for a 25 bps rate cut at the October 29 meeting, which would bring the fed funds rate to the 3.75%-4% range.
Ahead this week, the economic docket will be absent, except for data to be released by private companies. On Friday, the Institute for Supply Management (ISM) is expected to release the Services Purchasing Managers Index (PMI) for September.
Daily market movers: Gold price tumbles on US Dollar strength
- Bullion price is on the defensive as the Greenback recovers, shown by the US Dollar Index (DXY). The DXY, which tracks the buck’s value against a basket of six currencies, is up 0.20% at 97.88.
- US Treasury yields retreat as the 10-year Treasury note loses one basis point to 4.08%. US real yields are also down slightly to 1.738%.
- On Friday, the ISM Services PMI is expected to slow down from 52.0 to 51.7. The Employment sub-component, which could be sought in the case that payrolls are not released, was at 46.5 in August.
- Wednesday’s data revealed ADP figures for September, which showed that private companies cut 32K people from the workforce, below the 50K estimated to be hired.
- Business activity in the manufacturing sector improved, as depicted by the ISM Manufacturing PMI. The index increased to 49.1 in September from 48.7 in August, though it was the seventh month that the PMI was in contractionary territory.
- US job openings inched higher in August, rising to 7.23 million from 7.21 million, suggesting a still resilient labor market. However, the hiring rate slipped to 3.2%, its lowest since June 2024, while layoffs remained at historically low levels.
Technical outlook: Gold bulls take a breather ahead of challenging $3,900
Gold price is upwardly biased despite the formation of a "shooting star" candle, which is shifting toward an "evening star" as the US Dollar rises and Bullion sinks. A daily close below the September 30 open of $3,832 could pave the way for further downside.
The first support would be September 30 swing low of $3,793, followed by a test of the 20-day Simple Moving Average (SMA) at $3,713. Conversely, the XAU/USD could challenge $3,850 ahead of the all-time high at $3,895, before testing $3,900.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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