Gold prices testing resistance at $1,930 after 209K jobs created in June

NEW YORK (July 7) The gold market is moving higher as momentum in the U.S. labor market appears to be weakening, with fewer jobs than expected created last month.

U.S. nonfarm payrolls rose by 209 in June, according to the Bureau of Labor Statistics. The monthly figure was slightly below the market consensus estimate of around 224,000.

The U.S. unemployment rate dropped in line with expectations to 3.6%, down from May's reading of 3.7%.

The gold market saw modest gains ahead of the employment numbers, and prices have pushed back to initial resistance levels. August gold futures last traded at $1,930 an ounce, up 0.70% on the day.

Along with the disappointing headline numbers, the report also highlighted that wage inflation is not going away. The report said that average hourly wages increased by 12 cents or 0.4% last month to $33.58.

"Over the past 12 months, average hourly earnings have increased by 4.4 percent," the report said.

The report also downgraded the employment data for April and May. May's employment numbers were revised down to 306,000 jobs from the initial estimate of 339,000. At the same time, April's employment number was revised to 217,000, down from the previous estimate of 294,000.

According to some economists, the disappointing government data comes as a bit of a surprise as optimism for a strong reading was high following Thursday's report from private payrolls processor ADP, which showed a surge in hirings last month.

While the gold market is seeing some gains in initial reaction to the data, precious metals investors still have to contend with the Federal Reserve's aggressive monetary policy stance.

Adam Button, head of currency strategy at Forexlive.com, notes that the wage increase will get the Federal Reserve's attention.

Naeem Aslam, chief investment officer at Zaye Capital Markets, said that the latest employment data would create some uncertainty ahead of the central bank's monetary policy meeting later this month.

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"This doesn't mean that the Fed is going to change its monetary policy stance, and this also doesn't mean that the Fed can now adopt a more hawkish stance to tame inflation," he said. "As for the gold price, we think that the risk remains tilted to the downside, but the long-term uptrend remains unshaken. But for now, it is more about the strength and weakness of the dollar index, which is the key factor influencing gold prices."

Andrew Hunter, deputy chief U.S. economist at Capital Economics, said that the weak employment report won’t stop the Federal Reserve from raising interest rates.

“With the annual rate of wage growth unchanged at 4.4%, that is still too strong to be consistent with 2% inflation and suggests a further easing in labour market conditions is still needed,” he said.