Gold Clings to $1,700, Up 2nd Week Despite Robust U.S. Jobs Report

By Barani Krishnan

Investing.com -- Gold slid Friday but still posted a second straight weekly gain as an upward run in the first two days of the week helped the long crowd in bullion weather a robust U.S. jobs report for September that sent rival dollar rallying.

Gold’s benchmark futures contract on New York’s Comex, December, settled the day’s trade down $11.50, or 0.7%, at $1,709.30 per ounce. For the week though, December gold was up 2.2%, extending the previous week’s 1.3% gain.

The spot price of bullion, which is more closely followed than futures by some traders, was down $13.54, or 0.8%, at $1,699.08 by 14:00 ET (18:00 GMT).

Despite the weekly gain, bleeding in gold could continue if the rally in the dollar and accompanying U.S. bond yields did not stop, said Sunil Kumar Dixit, chief technical strategist at SKCharting.com.

“If gold’s rejection from the resistance zone of $1,730 is confirmed by a break below the $1690-$1685 area, bears will have an easy target of $1,560,” said Dixit. “This corresponds to the 50% Fibonacci retracement of the long term upwave from $1,046 to $2,073.”

The Dollar Index, which pits the U.S. currency against the euro and four other rivals, rallied for a third day in a row, hitting a session high of 112.7 and inching toward the 20-year highs hit a week ago.

The yield on the U.S. 10-year Treasury note hit a one-week high of 3.906%, just about a point away from the 11-year high of 4.019% registered on Sept. 27.

The dollar and bond yields shot up after data showing that U.S. employers added 263,000 jobs in September, slightly above economists' expectations. The U.S. jobless rate, meanwhile, dipped to 3.5% from August's 3.7% in a continued challenge to the Federal Reserve's fight against inflation, the data showed.

With the latest jobs report, economists raised to 92% the odds of the central bank imposing a 75-basis point rate hike for a fourth straight time in November in its bid to fight inflation.

Rates hikes are an anathema to risk assets, especially dollar-denominated commodities, as it raises the transaction/acquisition costs for traders using the euro and other currencies.

While gold is branded a safe-haven, in the eyes of investors, it is very much an alternative to the dollar. And here’s where gold’s problem lies. Of late, the dollar has persistently trended at two-decade highs as the Fed brought rates up by 300 basis points this year from a base of just 25.

Expectations are high that the Fed’s November rate hike will be followed with a December spike of at least 50 basis points, bringing rates up by a total of 425 points for the year.