Gold trading reminder: U.S. bond yields hit a new high in more than three months, gold prices are under slight pressure waiting for non-agricultural

On Friday (October 8) Asian time, spot gold held steady at around 1755. The price of gold fell slightly on Thursday (October 7), and the number of initial jobless claims dropped unexpectedly last week. This boosted U.S. Treasury yields and triggered bets that the Federal Reserve may soon begin to reduce economic support. At the same time, the rise in the stock market has also dampened risk aversion, which is also negative for gold prices.

In the day, we will focus on the September non-agricultural employment data in the United States, which may be negative for gold prices.

Fundamentals are bad

[U.S. stocks closed sharply higher, investors welcomed the temporary solution of the plan to temporarily resolve the deadlock on the US borrowing ceiling]

The U.S. stock market closed sharply higher on Thursday, and large technology stocks led the broad market to rise. The debt ceiling deadlock in the U.S. Congress is expected to come to an end, alleviating concerns about a possible government debt default this month.

(Dow daily chart)

The U.S. Senate took a step toward passing a $480 billion increase in borrowing power for the Treasury Department on Thursday, but it could lead to another partisan showdown in early December.

The uncertainty of the debt ceiling negotiations is a concern that investors believe that September caused the stock market to fall sharply. Last month, the S&P 500 index set the largest monthly percentage drop since the outbreak of the new crown epidemic in March 2020.

Kim Forrest, chief investment officer at Bokeh Capital Partners, said that today (the market) is being driven by a small step towards a rational solution from Washington, enabling them to pay their bills and expenses.

At the same time, data shows that the number of initial jobless claims in the United States dropped the most in three months last week, indicating that as the latest wave of new crown infections begins to subside, the recovery momentum in the labor market is regaining momentum.

Brad Neuman, head of market strategy at Alger, said that today's data reinforces expectations that employment will increase significantly in the next few months, which I think is good for the economy. As worries about the debt ceiling stalemate faded and hopes for accelerated employment growth increased, the market today surpassed the wall of worries.

[The number of people claiming unemployment benefits for the first time in the United States last week fell more than expected]

The general decline in the number of people applying for unemployment benefits for the first time in the United States last week indicated that the labor market continued to improve.

According to data released by the Ministry of Labor on Thursday, as of the week ending October 2, the number of people claiming unemployment benefits for the first time totaled 326,000, a decrease of 38,000 from the previous week. Economists surveyed before expected the median value to fall to 348,000.

As of the week of September 25, the number of continuous claims for unemployment benefits decreased to 2.7 million.

As the economy improves and companies lay off fewer employees, employers are now more focused on recruiting and retaining existing personnel. Moreover, although the United States continues to recover the jobs lost at the beginning of the epidemic, the sharp rebound in demand has exceeded the company's hiring capacity, making the already stretched supply chain even more tense.

The tight supply chain has led to a slowdown in production, and even prompted some companies to temporarily lay off their employees, causing the number of people claiming unemployment benefits for the first time each week to become more turbulent.

[U.S. Treasury yields rise, debt ceiling concerns eased to fuel risky sentiment]

The 10-year U.S. Treasury bond yield rose on Thursday, hitting a three-and-a-half-month high, as the market adjusted positions before the September employment report and the risky sentiment driven by Congress's temporary increase in the debt ceiling plan pushed down bond prices.

(Daily chart of 10-year U.S. Treasury yield)

Guy LeBas, chief fixed-income strategist at Janney Capital Management, said the US bond market is focusing on two things.

He said: "One of them is obviously a short-term solution to debt ceiling concerns. The second is the stock market, which has risen 2.5% in the past three days."

The US Senate is preparing to raise the debt ceiling by US$480 billion to avoid debt default. The government is expected to run out of cash around October 18. If the plan is passed, it will be postponed to early December, when concerns about default will reignite. This concern has pushed the yields of US short-term debt to rise sharply.

Ben Jeffery, interest rate strategist at BMO Capital Markets, said that before the September employment report was released on Friday, the market made some adjustments to the position of public debt. He added that last month’s employment growth “is likely to be close enough to the estimate to confirm the announcement of a reduction in debt purchases in November.”

Fundamentals are bullish

[The U.S. dollar is stable and gains a respite before the release of the U.S. non-agricultural employment report]

The U.S. dollar stabilized against a basket of currencies on Thursday, and the US labor market data to be released on Friday may provide clues to the timing of the Fed's next move.

(Daily chart of the US dollar index)

Most major currency pairs are stuck in recent trading ranges, and traders are unwilling to bet heavily before the data is released.

Michael Brown, a senior analyst at the payment company Caxton, said that today's market is quite typical of the dull before the release of non-agricultural employment data. I think that until the employment report is released, we may have been stuck in a range like this, but even then, considering that the reduction of quantitative easing in November looks almost certain, any weakness in the dollar should subside.

As the momentum for the shift from the pandemic crisis policy has increased, the Fed has stated that it may start reducing monthly bond purchases as early as November, and will raise interest rates afterwards.

Mark Haefele, chief investment officer of UBS Global Wealth Management, said in a report that the steadily improving labor market and steady economic growth in the United States should give the Fed the green light to reduce its quantitative easing program.

In general, the price of gold has not fluctuated much so far this week. The market is mainly waiting for the release of the non-agricultural report, which is expected to bring some pressure on the price of gold.

(Spot gold daily chart)

GMT+8 8:39, spot gold was quoted at $1,755.51 per ounce.