Gold trading reminder: U.S. Treasury yields fall back to support gold prices, non-agricultural fronts are expected to remain volatile

On Thursday (October 7) Asian time, spot gold held steady at around 1763. On Wednesday (October 6), the price of gold bottomed out and recovered. As the yields of U.S. Treasury bonds fell, the strength of the U.S. dollar limited the growth of gold. The improvement of ADP employment data and the optimism of the market also dragged down the price of gold.

In the day, the main focus is on the number of initial jobless claims and the challenger layoffs data. The data may be positive for the US dollar and negative for gold.

Fundamentals are bullish

[Short-term bond yields fall]

U.S. short-term bond yields fell sharply on Wednesday after the Senate Republican leader said that the Republicans would support extending the federal debt ceiling to December, a move that would avoid a historic default later this month.

The yield on U.S. Treasury bills that expire around October 18 has risen sharply since last week. US Treasury Secretary Yellen has said that the government will run out of cash on October 18, which may lead to a default.

Andrew Richman, senior fixed income strategist at Sterling Capital Management, said that short-term debt has been responding to Washington's "political wrestling". He said, "At least a short-term solution will be found, which reduces the pressure on short-term debt."

At the same time, the yields of longer-term government bonds fell from their highs in more than three months. The sharp rise in recent trading days has been suspended. However, the rise of long-term bonds weakened later in the day, as the US stock index turned to rise.

Jeff Wright, Chief Investment Officer of Wolfpack Capital, said that the small non-farm employment report reversed the trend of a small increase in public debt yields.

The decline in bond yields will reduce the opportunity cost of holding gold and increase investors' interest in buying non-yielding gold.

Fundamentals are bad

[ADP data shows that the number of new jobs created by American companies has reached the highest level in three months]

The number of new jobs created by American companies in September exceeded expectations and the largest increase since June, indicating that as more and more Americans return to work, continuing recruitment difficulties have begun to ease.

According to data released by the ADP Research Institute on Wednesday, the number of employees in enterprises increased by 568,000 last month, and the revised data in August increased by 340,000. The median forecast by survey economists is an increase of 430,000.

The accelerated pace of hiring shows that it has become easier for companies to fill vacant positions after the federal supplementary unemployment benefits ended on September 6 and the reopening of schools allowed some parents to return to work. Even so, it will take more time to achieve a full recovery in the labor market, and the total number of jobs measured by ADP is still far below the level before the pandemic.

The U.S. Department of Labor will release its monthly employment report on Friday. It is currently expected that the number of non-agricultural employment in the private sector will increase by 450,000 in September. Although the ADP data does not always show the same trend as the Labor Department data, the acceleration of the data may indicate a strong performance in the September non-agricultural employment report.

In September, the number of employment in the service industry increased by 466,000, of which employment in the leisure and hotel and catering industries increased by 266,000.

Employment in the commodity production industry increased by 102,000, mainly driven by employment growth in construction and manufacturing, both of which recorded the largest increase in a year.

ADP chief economist Nela Richardson said in a statement: “As the health situation related to the new crown variant continues to improve, the current recruitment bottleneck should subside, thereby laying the foundation for solid employment growth in the coming months.”

[Bitcoin price soars]

After the price of Bitcoin has soared by more than 30% in the past 7 days and hit its highest level since May, animal spirits in the market have risen again.

This rise is in sharp contrast to the recent downturn in traditional assets such as stocks, bonds and gold in the face of concerns about high inflation and slowing economic growth.

Bitcoin's rise overcomes China's ban on cryptocurrency trading and the market turmoil when El Salvador used Bitcoin as legal tender. Optimists point out that cryptocurrency itself seems to be increasingly recognized on Wall Street as an asset class. In addition, the remarks of US regulators alleviate people's concerns about stricter regulations.

The bulls showed "incredible resilience" and "the historical highs do not look far away," Oanda's senior market analyst Craig Erlam wrote in a report.

Other cryptocurrencies are also on the rise. According to CoinGecko data, Ethereum, Binance Coin, Solana and Dogecoin have all risen sharply in the past seven days. According to the cryptocurrency exchange Kraken, the trading volume of Bitcoin has been two-thirds higher than that of Ethereum since October.

Now that Bitcoin has surpassed $50,000, "We expect this bull market will push its price to near the high point in the fourth quarter," said Leah Wald, CEO of alternative asset management company Valkyrie Investments.

[US stocks closed higher, boosted by optimism that the US reached a debt ceiling agreement]

U.S. stocks closed higher on Wednesday as investors became more optimistic that Congressional Democrats and Republicans might reach an agreement to avoid government debt defaults.

The Dow rose 0.3%, the S&P 500 rose 0.41%, and the Nasdaq rose 0.47%.

(S&P 500 daily chart)

Jay Hatfield, founder and portfolio manager of Infrastructure Capital Advisors, said McConnell made some mild remarks on temporarily extending the debt ceiling, which will be interpreted as positive in the short term.

McConnell’s proposal may indicate a way out for the months-long deadlock between the Democratic and Republican parties led by President Biden. It was previously expected that the Republican Party would block the third attempt by the Senate Democrats to raise the $28.4 trillion debt ceiling on Wednesday.

The US stock market was lower for most of the time, after strong private employment data in September, which triggered the market to bet that the Federal Reserve might soon begin to tighten monetary stimulus measures.

[The soaring energy prices have caused inflation and interest rate hike concerns to drive the rise of the US dollar, focusing on employment data]

The U.S. dollar climbed across the board on Wednesday, as the soaring energy prices triggered concerns about inflation and interest rate hikes, suppressing investor interest in higher-risk assets and pushing funds to safe-haven assets.

(Daily chart of the US dollar index)

As oil prices hit their highest level in seven years, global stock markets fell early on Wednesday, and bond yields rose, and some of the trend was reversed later.

Minh Trang, senior foreign exchange trader at Silicon Valley Bank, said that what you see this week is that more inflation concerns are permeating the entire market. Rising inflationary pressures may adversely affect economic growth and affect how quickly the Fed can raise interest rates.

The Fed has stated that it may start to reduce the scale of monthly bond purchases as early as November, and then raise interest rates. The Fed will accelerate its transition from the epidemic crisis policy.

Investors are still anxious about the US debt ceiling negotiations, although the US Senate Republican leader McConnell said that the Republican Party will allow the federal debt ceiling to be extended to December, a move that will avoid historical defaults and a heavy blow to the economy.

In general, the price of gold continues to maintain a volatile trend, and this pattern is expected to continue until the non-agricultural report is released.

(Spot gold daily chart)

GMT+8 8:40, spot gold was quoted at US$1,763.14 per ounce.