Gold Prices Drop Sharply Amid Profit-Taking and Strong US Data
Sharp Decline Follows Record High
Spot gold experienced a significant decline on Thursday, closing down by \$43.50, or 1.56%, at \$2,743.63 per ounce. This drop followed a historic high of \$2,790.11 per ounce reached earlier in the day. Analysts cited profit-taking by investors and robust US economic data as primary reasons for the downturn.
David Meger, Director of Metals Trading at High Ridge Futures, suggested that gold prices are likely to consolidate due to an influx of significant news next week, including the US election on Tuesday and the Federal Reserve meeting on Wednesday. He noted that some traders chose to secure their gains ahead of this potentially volatile period.
A report from ANZ analysts echoed this sentiment, noting that profit-taking was the main driver behind the decline. Strong US economic indicators also contributed to market caution regarding the Federal Reserve's future interest rate strategy. Market participants are closely watching the upcoming release of the October US employment report and PMI data, which could further influence the Fed's policy direction.
According to Bloomberg, the drop in gold prices marked the largest decline since July, as traders closed positions near record highs. Additionally, strong US economic data weakened the case for further monetary easing, putting pressure on gold.
FXStreet analyst Christian Borjon Valencia highlighted the role of recent US economic indicators in gold's decline. The core Personal Consumption Expenditures (PCE) price index, a key inflation measure for the Federal Reserve, came in higher than expected, while the US jobs report also signaled economic strength. These factors have dampened prospects for additional interest rate cuts, which typically support gold prices.
The US Bureau of Economic Analysis reported that the core PCE price index rose 2.7% year-on-year in September, exceeding expectations. Additionally, initial jobless claims fell to 216,000, the lowest level since May, further indicating resilience in the US economy. Rising US Treasury yields, coupled with these positive economic signals, also contributed to gold's decline, as higher yields tend to diminish the appeal of non-yielding assets like gold.
In geopolitical news, US Secretary of State Antony Blinken announced "good progress" on a ceasefire in Lebanon, which added to the downward pressure on gold, traditionally considered a safe haven during periods of conflict.
With the US election scheduled for November 5, market uncertainty remains high. Analysts have noted a tight race between former President Donald Trump and Democratic Vice President John Harris. Financial markets and betting platforms appear to favor a Trump victory, adding another layer of volatility for investors. StoneX analyst Rhona O'Connell mentioned that geopolitical tensions and election-related uncertainties continue to underpin demand for gold, though the market remains in a "buy low" mode.
Attention now shifts to the US nonfarm payrolls report, which could provide further clues regarding the Federal Reserve's policy trajectory. Analysts expect a modest increase of around 100,000 jobs for October, following disruptions from hurricanes and a major labor strike. If these estimates prove correct, it would mark the weakest job growth since December 2020.
FXStreet's Valencia suggested that, despite the recent pullback, gold retains a bullish outlook if prices stay above \$2,700 per ounce. Breaking above the \$2,750 mark could lead to renewed momentum toward the all-time high of \$2,790. On the downside, support levels are seen at \$2,708 and \$2,685, with a potential drop towards the 50-day simple moving average at \$2,603 if selling pressure continues.
