Gold shines on weak US jobs data

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Gold traded higher on Thursday (Sept.30),  after two days of losses. The precious metal jumped over 2% to reach the highest level in a week as disappointing U.S. labor data and a weaker dollar supported it.

Nationwide unemployment claims rose for a third week in a row reaching 362,000, according to the Labor Department. Economists surveyed by Dow Jones had been expecting 335,000 new filings. The greenback declined after the report.

Investors also sought haven as uncertainties still remain on the U.S. political front. 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. A suspension of the debt ceiling expired in late July and Democrats and Republicans in Congress remain at odds.

Traders are also focusing on a House Financial Services Committee hearing where Fed Chair Jerome Powell and Treasury Secretary Janet Yellen were testifying. Yellen reiterated her call for Congress to raise the debt ceiling, warning the failure to do so would cause a financial crisis as the government will run out of cash around October 18. A default on U.S. debt that would result in job losses, economic damage and a drop in the stock market.

When asked by a member of the Committee if the damage done by failure to meet the federal government’s debt obligations would be “irreparable,” she answered: “Yes.” Federal Reserve Chair Jerome Powell said that supply chain issues could cause inflation to last longer than the Fed had previously thought, noting that inflationary levels will remain elevated until the supply bottlenecks are resolved.

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

S&P Global Ratings said in a bulletin on Thursday it anticipates the Congress will address the debt ceiling in a timely manner, either by raising it or suspending it. “It would be unprecedented in modern times for an advanced G-7 country, like the U.S., to default on its sovereign debt,” the rating agency said.

Gold

Gold rallied 2.10% to sell for $1,762.84 per ounce at 11:23 am ET. Still, gold headed for a near 3% monthly fall and a 0.6% quarterly drop.

The metal is witnessing some relief rally however it may not sustain as heightened prospects for the Fed’s tapering, now widely expected to commence in November, may keep US dollar supported.

Chances of Treasury yields continuing to gain are expected to heap more downward pressure on the zero-yielding precious metal.

The combination of higher treasury yields, strong dollar, inflation worries and risk off sentiments in the markets are the key reasons for underperformance in the yellow metal.