The price of non-agricultural gold hits with twists and turns, but investment banks are happy to watch as high as $5,500!

After three consecutive days of gains, spot gold turned down again on Tuesday. The prospect that the Fed may plan to reduce the size of monthly bond purchases before the end of the year continues to put pressure on the gold market. However, an investment company believes that in the long run, gold prices will continue to push up thousands of dollars.

This week's non-agricultural employment data may determine the market trend

Better-than-expected US data further boosted market sentiment. In September, the PMI of the ISM service industry rose from 61.7 to 61.9, much better than the expected 60. Service industry activity has improved for the 16th consecutive month, although official reports also show that people are increasingly worried about logistics bottlenecks and constraints and employment issues.

This week, the market is really concerned about the September non-agricultural employment report. Market participants cautiously await the non-agricultural employment report that the US Department of Labor will release on Friday, October 8. This report will definitely have a profound impact on the Fed’s upcoming actions, including when it will begin to reduce the scale of monthly asset purchases.

The strong employment report will continue the Fed's tougher argument on the normalization of monetary policy. This will allow the Fed to start reducing the scale of debt purchases earlier and reduce the scale of debt purchases by US$120 billion per month from now to December. In contrast, weak data may reignite the Fed's more dovish tone.

Currently, the forecast for non-agricultural employment in September is much stronger than the weak August report. A report from the Labor Department on Friday is expected to show an improvement in the labor market, with 488,000 new jobs expected to be added.

Friday's employment report will have a strong impact on the financial market and affect the future direction of the stock market and gold prices. For gold and the stock market, "good news is bad news." A strong employment report is expected to push the Fed to gradually withdraw from the stimulus policy. However, if the employment report is much lower than expected as it was in August, it may slow the Fed's process of reducing the scale of debt purchases, which will bring benefits to gold and the US stock market.

Emergency monetary policy is easy to roll out, and investment banks expect the price of gold to rise to US$5,500 per ounce

In a report released on Tuesday, the investment bank Jefferies Group stated that gold and Bitcoin remain essential hedging tools because the threat of stagflation continues to grow. Although the market is still struggling in the near term, Jefferies analysts said that their long-term forecast of the price of gold to rise to $5,500 per ounce is still valid.

This is done by comparing the peak gold price of $850/oz in January 1980 with the increase in nominal personal per capita disposable income in the United States since then. At that time, the price of gold was equivalent to 9.9% of American disposable income. The current price of gold is $1,757 per ounce, equivalent to 3.2% of Americans' disposable income. However, the bank said that in the short term, gold will remain vulnerable to tightening concerns.

The company is still bullish on gold because central banks have found that it is easier to implement unorthodox monetary policy than to withdraw from monetary policy: "Our long-term view is the same as it has been for many years. The central banks of the Group of Seven (G7), including the most important Fed, will Unable to withdraw from unconventional monetary policy in a benign way, and will eventually continue to work on the expansion of the central bank’s balance sheet in some form. These policies will make those central banks that pursue unconventional monetary policies increasingly lose their credibility and threaten the current situation. The stability and integrity of the legal tender system. "

In addition to gold, the company also believes that with the devaluation of fiat currencies, the price of Bitcoin is likely to rise. The company's global portfolio of long-term global investors in U.S. dollars holds 5% of cryptocurrencies. These analysts said: "The reason for the introduction of Bitcoin is that with the increasing evidence of the Group of Seven (G7) currency devaluation policies, Bitcoin is clearly a legitimate choice to avoid risk capital seeking a store of value."

Jefferies analysts emphasized: “Investments in gold and bitcoin are considered insurance, not short-term transactions. This is a long-term investment portfolio that seeks to balance long-term risks and opportunities in the current global context.”


(Spot gold daily chart)

At 09:12 on October 6, GMT+8, spot gold was quoted at $1758.3 per ounce.