How to interpret today’s employment report and what does it mean for the price of gold?

Today’s jobs report for September showed a decline in monthly gains, with 263,000 new jobs added last month, down from the previous month when 315,000 new jobs were added.

The profound impact it had on almost every asset class in the financial markets was not due to the mixed numbers, but rather to the Federal Reserve’s hopes that those numbers would be even lower. The Federal Reserve had hoped that today’s report would show even slower growth, as this would indicate progress by the Federal Reserve in reducing inflation.

Inflation is still very high at a 40-year high, even after the Federal Reserve raised interest rates at every FOMC meeting since March. The Fed raised rates by 25 basis points in March, 50 basis points in May and 75 basis points in June, July and September. The Fed raised its key Fed funds rate from 0 to 25 basis points in February to 300 to 325 basis points in September.

Although today’s report indicated a slowdown in job growth, it is believed that this contraction is not enough for the Federal Reserve to slow its current pace of interest rate hikes.

According to CME’s FedWatch tool, last week there was a 56.5% chance, yesterday there was a 75.2% chance which today has inflated to an 82.3% chance that The Federal Reserve raises rates by 75 basis points for the fourth straight time at the November FOMC meeting. This probability indicator forecasts the likelihood of FOMC rate moves using Fed Funds 30-day futures pricing data.

Today’s report had a profound effect on US stocks. As of 2:35 p.m. EDT, the Dow Jones is currently trading 661 points down 2.22%. The NASDAQ is currently down 3.75%, down about 415 points, and the S&P is down 106.16 points or 2.90%.

Today’s report also had a profound impact on the price of gold which opened at $1721 and then traded to a high of $1722.80 before the release of the report which made the contract gold futures the most active December contract at today’s low of $1698.40. Gold futures recovered trading at around $1,714 within hours of the report’s release. However, as of this writing at 3:20 p.m. EDT for the past hour, gold was trading between $1,702 and $1,706.

So what does this mean for the future of gold prices? I believe that while this report is hugely important in a hugely important data set that the Federal Reserve will be using at its November 2 FOMC meeting, it will be next week’s CPI inflation report for September that will be a lot more significant. But when it comes to the long-term effect of the Federal Reserve on the price of gold, it’s highly likely that if the Fed continues to raise rates and inflation remains persistent at some point, the Market players will need to focus on the high level of inflation rather than being laser-focused on rising rates. If this assumption is correct, gold could rise significantly. But it’s also likely that there will be more pain to come.

Our technical studies indicate that the first level of resistance occurs at $1710, the 23.6% Fibonacci retracement which is based on a very short term Fibonacci retracement data set from September 28th to October 7th. Major resistance occurs at $1738, the recent rally high that began after gold hit its lowest value in years at $1621. The first level of support occurs at $1693.80, the 38.2% Fibonacci retracement, and then at $1689.40, a 42% retracement.

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Wishing you as always good exchanges and good health,

Disclaimer: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. This is not a solicitation to trade commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for loss and/or damage resulting from the use of this publication.


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