Gold prices back at all-time highs as U.S. economy created 22K jobs in August
NEW YORK (September 5) The gold market is once again attracting robust safe-haven demand as the U.S. labor market continues to lose momentum faster than expected.
According to the Bureau of Labor Statistics, U.S. nonfarm payrolls rose by only 22,000 last month. This figure significantly missed consensus forecasts, as economists had expected job gains of around 75,000.
At the same time, the unemployment rate edged higher to 4.3%, up from July’s reading of 4.2%. This increase was in line with consensus forecasts.
Gold has been hovering around $3,550 an ounce after breaking out of a five-month consolidation period at the start of the month. The precious metal extended those gains, rallying to a fresh session and all-time high in the initial reaction to the employment data. Spot gold last traded at $3,578.22 an ounce, up nearly 1% on the day.
Markets also remain sensitive to revisions. June’s employment data was revised lower to show a contraction of 13,000 jobs, while July’s figure was revised slightly higher to 79,000 jobs.
“With these revisions, employment in June and July combined is 21,000 lower than previously reported,” the report said.
Although job growth is slowing, the report highlighted solid wage gains. Last month, average hourly earnings increased by 10 cents, or 0.3%, to $36.53, in line with expectations.
“Over the past 12 months, average hourly earnings have increased by 3.7%,” the report said.
The weakening U.S. labor market is helping to solidify expectations for aggressive rate cuts from the Federal Reserve through the rest of the year. Markets are still pricing in a 25-basis-point cut later this month and now see the potential for rates to be a full percentage point lower by year-end.
In a note Thursday, Suki Cooper, Head of Commodities Research at Standard Chartered Bank, warned that employment growth below 40,000 could prompt markets to start pricing in a 50-basis-point cut later this month.
Expectations for rate cuts continue to grow as inflation pressures remain elevated. Analysts have said this is a favorable environment for gold, as stagflationary risks increase. In an interview with Kitco News, Aakash Doshi, Head of Gold Strategy at State Street Investment Management, said that if current trends continue, he expects the U.S. economy to fall into stagflation within the next three to six months, potentially driving gold prices to $4,000 an ounce.
Mohammed Taha of MH Markets said that the August NFP data is the latest report to confirm growing weakness in the labor market. This week, private-sector payroll processor ADP also reported disappointing employment data, while the U.S. Labor Department said job openings dropped sharply in July, according to its monthly Job Openings and Labor Turnover Survey (JOLTS).
“The 22k figure could push gold toward $3,600/oz or new record highs, fueled by heightened safe-haven demand amid economic uncertainty and potential geopolitical tensions. The scale of the NFP miss suggests strong bullish momentum for gold, though traders will monitor revisions to prior data or other NFP components (e.g., unemployment rate, wages) for additional context,” said Taha.
Jeffrey Roach, Chief Economist for LPL Financial, said that although the labor market is coming to a standstill, it might not be enough to force the Federal Reserve to cut rates by 50 basis points later this month.
“As the Fed prepares for its upcoming meeting, policy makers will likely focus on the weakness in the job market to defend their decision to cut rates. The labor data is probably not weak enough for the Fed to cut by 50 basis points given inflation persistence, so as of now, our expectations are for a 25 basis point cut,” he said in a note.
KitcoNews
