Gold prices are waiting for small non-farmers in 2020, or a set of super-weak data may be needed to stimulate upward momentum

Wednesday (December 6) into the European market, spot gold after the first two days of thrilling, is currently in a narrow range around the 2020 dollar, waiting for this week's key non-farm payrolls report, before today's market will be the first to usher in the US ADP data test.

Gold prices rose on Wednesday as a weaker dollar and weaker-than-expected U.S. jobs data cemented expectations that the Federal Reserve's tightening cycle was over.

Matt Simpson, senior analyst at City Index, said: "Gold price volatility is likely to remain limited until the US non-farm payrolls data is released on Friday."

"Gold may need a particularly weak set of data to start rising strongly from now on, as many bullish fingers could get hurt when gold falsely breaks through to record highs," said Mr. Simpson.

Gold prices rose to a record high of $2,135.40 on Monday as bets on the Federal Reserve to cut interest rates increased, but fell more than $100 in the same session on uncertainty over the timing of monetary policy easing.

Focusing on non-farm farmers in the United States

US job openings fell to a more than two-and-a-half-year low in October, data showed on Tuesday, suggesting rising interest rates were damping job demand. The data also showed 1.34 job openings per unemployed person in October, the lowest level since August 2021.

After rising to a two-week high on Tuesday, the dollar index strengthened against a basket of currencies, making gold less expensive for holders of other currencies.

The dollar index, which measures the greenback against six major currencies, rose 0.019 percent to near 104, up 0.3 percent overnight. The index rose 0.5 percent this month and fell 3 percent in November, its biggest monthly decline in a year.

The focus now turns to Friday's November non-farm payrolls data, which could provide more clues about the outlook for interest rates ahead of the Federal Reserve's policy meeting next week.

"The focus this week is the jobs report," said Christopher Wong, currency strategist at OCBC, adding that an unexpected downturn could stall the dollar rally.

Traders see a roughly 60 per cent chance of a rate cut by March, according to the Chicago Mercantile Exchange's FedWatch Tool, where lower rates tend to support interest-free gold.

Federal Reserve officials are currently in a period of silence ahead of their December 12-13 meeting, and a key focus of the meeting will be their updated projections for the level of interest rates in 2024.

ANZ analysts predict that the conditions for the Federal Reserve to start cutting interest rates will emerge around mid-2024, but warn that Fed Chairperson Jerome Powell will need to maintain hawkish guidance during the transition to low growth and low inflation.

According to a survey of foreign exchange strategists, the widely expected rate cut in 2024 will lead to the US dollar loosening its grip on other G10 currencies next year, dimming the outlook for the dollar.

Spot gold is likely to rebound to the $2,033-2,039 per ounce range as gold prices have stabilized near the $2,09 support.

Gold is no longer an inflation hedge

Deutsche Bank has written that gold may no longer be an ideal hedge against inflation, and investors are looking for alternatives.

The bank pointed out that investors are digesting a steeper rate cut in 2024, which increases the relative attractiveness of bonds that pay no interest.

The bank said the chart showed the real inflation-adjusted price of gold returning to 1790. Although the nominal exchange rate has reached a record high, it is still more than 20% below its inflation-adjusted peak in 1980.

(Source: Deutsche Bank)

While gold may seem like a good hedge against inflation, it can only keep up with inflation if bought at the right time. In fact, it has lagged traditional assets in almost all medium- to long-term periods.

Deutsche Bank believes that, therefore, you can be a long-term inflationist but still be less interested in gold as an investment.