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Gold Prices Under Pressure As U.S. Economy Creates 250K Jobs In October

Kitco News

(Kitco News) - The gold market is seeing a little selling pressure following stronger than expected U.S. employment data.

The Bureau of Labor Statistics said 250,000 jobs were created in October, economists were expecting to see job gains of around 194,000.

At the same time the unemployment rate was unchanged at 3.7%, in line with expectations. The unemployment rate is at its lowest level since 1969.

Gold prices were slightly down ahead of the report and remains under pressure in initial reaction; December gold futures last traded at $1,234.40, down 0.37% on the day.

Positive for gold, the report highlighted strong wage inflation. Average hourly wages increased by 5 cents or 0.2% to $27.30. For the year inflation rose 3.1%, its biggest increase in nine years.

Commodity analysts have said that rising wage inflation could be the critical component of the U.S. economy that will drive gold prices higher. Analysts have noted that higher inflation will keep real interest rates low, which lowers gold’s opportunity costs as a non-yielding asset.

However, inflation is a more long-term factor and some economists have noted that the latest employment data should support the U.S. dollar in the near-term, which will weigh on the yellow metal.

"Wage inflation may still be a little slower than policymakers would like and expect given how low unemployment is, but it has been on an uptrend since the start of the year," said Andrew Grantham, senior economist at CIBC World Markets. "Overall, a higher than expected gain in jobs and annual wage increase above 3% should be positive for the [U.S dollar] and negative for fixed income."

Paul Ashworth, chief U.S. economist, said that the strong employment report supports a December interest rate hike.

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