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Gold advanced in early Asian trading as investors recalibrated expectations toward a more dovish Federal Reserve. The catalyst was a combination of weaker private payroll data and the prolonged U.S. government shutdown, which has amplified uncertainty and increased demand for non-yielding assets.
The transmission channel runs through lower expected real yields, a key determinant of gold’s opportunity cost, creating short-term upside for the metal.
The latest estimate from ADP suggested that the U.S. private sector was losing roughly 11,250 jobs per week in the four weeks through October 25, signaling a deceleration in hiring momentum. This data, though derived from alternative sources, has gained credibility during the shutdown, filling the vacuum left by the suspension of official statistics.
The erosion of labor market strength, coupled with earlier signs of cooling consumer demand, bolsters the argument for the Fed to deliver another rate cut in December.
Market reactions reflected a cautious repricing across asset classes. On Monday, spot gold climbed toward $2,420 per ounce, marking a gain of roughly 0.6% intraday, while December Comex futures tracked slightly higher. The yield on the U.S. 2-year Treasury note slipped by nearly 5 basis points to around 3.80%, signaling expectations of softer policy in the months ahead.
The 10-year yield also edged down to 4.05%, maintaining a curve inversion that underscores recession fears. The US Dollar Index (DXY) retreated below 103.5, adding tailwinds to gold through relative currency effects. U.S. equity futures rose modestly, though defensive sectors like utilities and consumer staples outperformed growth-linked industries, hinting at renewed caution rather than broad-based risk appetite.
The macro narrative is now dominated by the prospect of policy divergence. If the Fed pivots earlier than expected while the European Central Bank and Bank of England remain cautious, the dollar could weaken further, providing additional lift to commodities. Conversely, if U.S. inflation proves sticky once official data resumes, real yields could rebound, capping gold’s advance and reversing some of the recent currency softness.
Oil prices, which had been range-bound near $80 per barrel, remain a key variable in this inflation calculus, particularly if Middle East tensions escalate again.
The base case favors a near-term Fed rate cut in December as the central bank acknowledges mounting downside risks to growth. Under this scenario, gold could extend gains toward $2,450–$2,480 per ounce in the coming weeks. The alternative case rests on a stronger-than-expected recovery in labor and spending data once the shutdown ends, prompting policymakers to pause further easing.
That outcome would likely push real yields higher and drive gold back toward its 20-day moving average near $2,360. Traders will closely watch the next set of ADP and ISM releases, as well as any public remarks from Chair Powell, for confirmation of direction.
For investors, the tactical setup favors maintaining partial exposure to gold as a hedge against a weaker macro backdrop. The opportunity lies in its asymmetric response to policy shifts: if the Fed cuts, gold benefits from falling yields; if it holds, downside may be limited by geopolitical and fiscal uncertainty.
The key risk is a sudden rebound in real yields that could trigger position unwinding among momentum-driven funds. Until clearer economic data emerge, gold’s appeal as a store of value in a data-constrained environment remains intact.