Will strong jobs data force the Fed to hold rates steady?
The December nonfarm payrolls report exceeded expectations, adding 256,000 jobs, compared to economists’ forecasts of 160,000. The unemployment rate fell to 4.1%, while the average hourly wage rose by 0.3%. This robust performance reduced the likelihood of immediate rate cuts from the Federal Reserve, as futures markets are now pricing in just one cut before 2025, likely mid-year.
In response, US Treasury yields rose, with the 10-year yield reaching 4.745%, the highest level since late 2023, and the 2-year yield rising more than 10 basis points to 4.369%. Strong labor market data strengthened the US dollar, which rose for a sixth straight week, further tightening conditions for gold.
Can gold withstand the pressure of a rising dollar?
Gold prices initially fell following the stronger-than-expected jobs data, but quickly recovered. Concerns about President-elect Donald Trump’s economic agenda have added a layer of uncertainty. Proposals such as tariffs, tax cuts and mass deportations are seen as potentially inflationary, which could complicate the Federal Reserve’s monetary policy plans.
This uncertainty has kept gold’s safe-haven appeal intact as investors remained cautious ahead of Trump’s inauguration on January 20. Despite the strength of the dollar and bond yields, gold has shown resilience, reflecting continued demand from risk-averse investors.
What’s next for gold as Trump’s policies unfold?
The coming implementation of Trump’s policies looms large over markets, and gold could benefit from heightened fears as inflationary pressures rise. For now, gold traders should keep an eye on key fiscal policy developments and Fed signals, as these will likely dictate the metal’s next move.
While dollar strength and rising yields may limit near-term upside potential, gold’s safe-haven status could provide bullish undertones in the face of uncertainty.