Gold Wobbles on Job Ahead of Crucial US Jan CPI Data

Traders are struggling for direction amid mixed signals from recent US data causing gold to fluctuate as the market looks to upcoming CPI figures to gauge the future Fed rate path.

The Key Insights

• Gold prices dipped after stronger-than-expected jobs numbers, with lower unemployment seen reducing the odds of a near-term Fed rate cut.
• Long-term weakness in job creation could still leave the door open to easing later in the year.
• Focus is now on inflation, which is above target but trending in the right direction, with January core CPI expected to cool to 2.5% from 2.6% a month ago.

More But Also Fewer Jobs

Markets were initially shocked by Wednesday's strong jobs report, with gold prices dropping quickly, but also recovering within minutes as traders processed the implications of the data. NFP came in at 130K, well above the 70K consensus, and the unemployment rate fell by one decimal point to 4.3%, both indicating a stronger-than-expected labour market. The decline in the jobless number might have caused the initial drop in gold. However, data for prior months were revised slightly lower, as were annual job creation estimates. It showed that 2025 had the lowest job creation outside a recession since 2003, driven by a lack of job openings. This likely left markets with the impression that, the headline number notwithstanding, the labour market remains weak enough for FOMC doves to continue to advocate for cuts.

The unexpectedly strong US labour data left gold prices lower on Wednesday, dipping 0.3%, but staying above the $5,000 per ounce level, as the dollar index edged higher. Analysts suggested that the market response to the data suggests they are normalising from the intense volatility seen in January. Large inflows into ETFs from China were considered partially driving gold to record highs, and the upcoming Lunar New Year holiday in China might dampen risk appetite and reduce liquidity. Meanwhile, US officials continued to push for a stronger dollar, with US Treasury Secretary Scott Bessent reiterating that the US was not intervening in the market. The comments came after US President Donald Trump argued that US interest rates should be the lowest in the world.

US Inflation Continues to Cool

Friday marks the release of January CPI figures, with the headline rate expected to dip to 2.5% from 2.7% a month ago, primarily due to a drop in fuel costs. The core rate is anticipated to cool at a more modest rate to 2.5% from 2.6% prior, above the Fed's 2.0% target. Markets are pricing in a more than 90% chance that the Fed will keep rates unchanged at the upcoming March meeting (up from around 80% before the jobs data). An unexpectedly large drop in inflation could bring back the possibility of a rate cut, which could support gold. However, hotter inflation would likely weigh on gold prices as the market pushes forward expectations of Fed easing.

Gold Biased Up Above Medium VWAP

Gold has managed to reclaim the medium VWAP line near the $5k handle, with both the upper and lower bands suggesting consolidation. If tomorrow’s CPI comes in hot, the yellow metal might lose $4650 support and revisit the bottom of $4400. On the flip side, cooling inflation could extend the upside leg towards $5390, assuming the $5250 psychological resistance gives way to bulls.

Source: SpreadEx | Gold, Daily Chart