A stronger U.S. dollar and rising U.S. government bond yields could represent a significant headwind for gold this week despite Friday’s gains, as the precious metal’s inverse relationship to the greenback continues to offset safe haven demand.
With a fairly light week on the economic calendar investors will continue to monitor the effects of rising U.S. government bond yields on markets, when U.S. bond markets reopen on Tuesday after Monday’s Columbus Day holiday.
Concerns over Italy’s rising debts and strains in emerging markets will also remain in focus as markets continue to digest Friday’s mixed U.S. non-farm payrolls report.
Gold futures ended higher on Friday, snapping two days of losses as the dollar softened after the Labor Department reported that the rate of job creation slowed sharply in September, while wage growth also eased.
Gold futures for December delivery ended up 0.42% at $1,206.70 on the Comex division of the New York Mercantile Exchange. The precious metal was up 0.81% for the week.
The U.S. economy added 134,000 jobs last month, the fewest in a year, though the figure for August was revised up to 270,000 from 201,000. The slowdown in jobs growth was likely due to the effects of Hurricane Florence.
Annual earnings growth came in at 2.8%, down from 2.9% in August.
While jobs growth slowed, the unemployment rate fell to a near 49-year low of 3.7%, down from 3.9% in August.
The dollar slipped lower following the report, with the U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, dipping 0.13% to 95.31 late Friday. The index still ended the week up 0.6%, its second straight weekly gain.
Hawkish Fed speakers and strong U.S. economic reports have supported the greenback in recent weeks.
The report did little to alter expectations that the Federal Reserve will press on with plans to raise interest rates again in December and beyond.
Interest rate increases and higher U.S. bond yields dampen appeal for gold, which offers no yield. They also tend to boost the dollar. A stronger dollar can make dollar denominated assets, like gold, more expensive for potential buyers holding other currencies.
The yellow metal ended the third quarter down 4.6% after falling 0.9% in September as rising U.S. interest rates and the dollar’s march higher this year weighed.