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Gold Prices Drop Further As U.S. Creates 223K Jobs In May

Kitco News

(Kitco News) - Gold prices remain under pressure ahead of the weekend as the U.S. economy created more jobs than expected in May.

Friday, The Bureau of Labor Statistics said 223,000 jobs were created last month. Economists were expecting to see job gains of 189,000.

At the same time, the unemployment rate fell to 3.8%, beating expectations for a reading of 3.9%.

Gold prices have pushed solidly below critical psychological support at $1,300 an ounce following the employment numbers. The selloff comes as markets were expecting a strong report following a comment from President Donald Trump. Ahead of the data, Trump said that he is "looking forward to seeing the employment numbers," which prompted a rise in the U.S. dollar.

August gold futures last traded at $1,295.10 an ounce, down 0.72% on the day.

According to economists, the employment report showed broad-based strength in the labor market. Not only was May employment data stronger than expected but March employment data was revised up to 155,000 jobs, from the previous level of 135,000 jobs. April employment data was revised down to 159,000 jobs from the initial report of 164,000 jobs.

Wage growth is a mixed bag for gold prices, according to some economists. The report showed substantial gains in average hourly earnings last month, with wages increasing eight cents or 0.3% last month. For the year, salaries are up 2.7%.

Wage growth implies growing inflation pressures, which is favorable for gold as an inflation hedge, but some economists say that the data could raise expectations that the Federal Reserve hikes interest rates at a faster pace than expected.

Andrew Grantham, senior economist at CIBC World Markets, said that the data support a stronger U.S. dollar and higher bond yields, which are both negative factors for gold. However, he added that the data doesn't change his firm's expectations for rate hikes this year.

He noted that wage gains are "still within the range it has trended in since mid-2016 and not high enough to warrant a faster pace of rate hikes."

Paul Ashworth, chief U.S. economist at Capital Economics said that the employment data continue to support a strong economic outlook and supports further interest rate hikes.

“In short, the economy and labour market appear to be firing on all cylinders, with all sectors showing strength,” he said.

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