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Gold is witnessing some relief rally

posted onSeptember 30, 2021
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Gold jumped over 2% on Thursday (Sept. 30) to reach the highest level in a week as weaker U.S. labor data and a softer dollar supported the yellow metal.

US initial jobless claims rose by 11,000 to 362,000, climbing for a third week in a row, the Labor Department reported. The uptick surprised economists, who had expected jobless claims to dip to 335,000. The US dollar fell after the report.

Investors also sought haven as they were monitoring the latest developments in Washington. 

The House voted on Wednesday (Sept. 29) to suspend the country’s debt limit until December 2022 but the bill is unlikely to be approved in the Senate as Republicans insisted they will not support the legislation. 

“In the short term, politics influences traders and people looking for an edge” Tim Ghriskey, chief investment strategist at Inverness Counsel in New York told Reuters.

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Traders also kept an eye on Fed Chairman Jerome Powell, along with Treasury Secretary Janet Yellen, who testified before the U.S. House Committee on Financial Services. Yellen stated that any default on U.S. debt would cause irreparable harm as well as an ensuing financial crisis and recession.

Earlier this week, JPMorgan Chase CEO Jamie Dimon said America’s largest lender is preparing for a potential US default.

Gold advanced 2.10% to sell for $1,762.84 per ounce at 11:23 ET. But expectations that the U.S. Federal Reserve would soon start tapering its monetary support could diminishing gold's appeal.

Gold is traditionally seen as a hedge against inflation and is often used as a safe store of value during times of political and financial uncertainty. The precious metal is highly sensitive to interest rates, as lower rates reduce the opportunity cost of holding non-yielding bullion.

“A firmer U.S. dollar and higher yields are a toxic combination for gold,” Commerzbank said in a note. “In the short term, the risk of a further price slide predominates, meaning that the $1,700 mark could already be reached soon,” the bank added.

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