Gold prices eye US PMI, jobless claims data as FOMC members go dark

Gold price fundamental forecast: bearish

Gold prices fell last week as Treasury yields rose amid hawkish Fed speak; a FOMC blackout period puts economic data in focus for rate traders and US PMIs and weekly jobless claims data on the radar for bullion prices.

Gold prices trimmed losses on Friday and brought its weekly performance positive for the week, retracing a portion of its losses from the prior week, although the yellow metal remains on course to record its seventh consecutive monthly loss. The failure to break last month’s 2022 low offers encouragement, although the fundamental outlook remains bearish amid rising rates. Bond traders have good reason to be bearish until a tangible Federal Reserve policy pivot comes into view. Traders may decide to sell into strength next week.

While it is encouraging to see gold holding above its September low as Treasury yields hit new highs, the bond selloff remains a headwind for bullion prices. The policy-sensitive two-year US yield rose above the 4.6% mark last week as FOMC members sounded off on the need for more rate hikes. Federal Reserve Governor Lisa Cook said that inflation remains unacceptably and stubbornly high. Rate traders are pricing a 100% chance for a 75-basis point rate hike at the November 02 FOMC meeting and a 13% chance for a 100-bps hike, according to Fed funds futures.

Moreover, US economic data suggested that the jobs market remains resilient, a discouraging sign for gold traders. That is because the Fed wants to see some softening in labor numbers, which should help to cool persistently high inflation. US initial jobless claims for the week ending October 15 crossed the wires at 214k, beating the 230K Bloomberg consensus forecast and down from 226k the week prior.

The FOMC blackout period began on Saturday after a week of hawkish Fedspeak. This week’s data includes updated purchasing managers’ indexes from S&P Global and weekly jobless claims data. Analysts expect to see the October manufacturing PMI decrease to 51.0 from 52.0, and the services PMI remain nearly unchanged at 49.4. America’s factory sector has been surprisingly strong amid aggressive rate hikes.

According to the Federal Reserve, factory production utilization hit the highest level since 2000, suggesting healthy demand. That said, the manufacturing PMI looks primed to surprise estimates. That would likely firm up already lofty rate hike bets. Gold is likely to fall under that scenario, although given the recent selloff, a relief rally can’t be ruled out. Selling into gold strength outside of a dovish sentiment shift for rates may be the smart move if that were to occur.

Gold Versus two-year Treasury yield - daily chart

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