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Gold Market Resilient Despite Strong U.S Jobs Growth

Kitco News

(Kitco News) - Gold futures bounced Friday despite a report on U.S. nonfarm payrolls that was much stronger than forecast, with analysts citing disappointing wage growth and “sell-the-rumor, buy-the-fact” trading since employment gains were already factored into prices.

The Labor Department reported that nonfarm payrolls rose by 263,000 in April, while the unemployment rate fell to a 49-year low of 3.6%.

Traditionally, gold would come under pressure on strong data such as this on ideas that the Federal Open Market Committee would be more inclined to hike U.S. interest rates.

Instead, as of 10:38 a.m. EDT, Comex June gold was $10 higher to $1,282 an ounce.

“It’s more the internals of the [jobs report],” said Ryan McKay, commodity strategist with TD Securities. “The numbers were a disappointment on the wage side.”

Wage growth was unchanged at 3.2% over the last 12 months, showing signs of leveling off. Expectations were for slightly higher, McKay said.

The strategist pointed out that in his press conference earlier this week, Federal Reserve Chair Jerome Powell suggested that any soft inflation readings are likely transitory. As a result, his remarks were hawkishly construed. However, McKay said, with the lower-than-expected growth in wages, the market may be doubting whether inflation is transitory after all.

Lukman Otunuga, research analyst at FXTM, pointed out that the U.S. dollar was not able to benefit from the jobs data. The June dollar index was 0.006 softer to 97.580. Gold tends to move inversely to the greenback.

“With the unemployment rate dropping to its lowest level since December 1969…one would have expected the dollar to aggressively appreciate against its major counterparts,” Otunuga said. “However, the market reaction suggests that investors are clearly more concerned with wage-growth figures which came in at 0.2% month-over-month, slightly below the expected 0.3%. All in all, today’s report is unlikely to pull the Federal Reserve away from the sidelines and this reality continues to be reflected in the dollar’s price action.”

CIBC Economics also issued a report citing some worries about the data even though employment itself soared.
“However, the details of the report weren’t quite so encouraging, with the decline in the unemployment rate driven largely by a fall in the labor force within the household survey,” CIBC said. “Meanwhile on the establishment survey, a slight tick down in average working hours meant that, despite the strong job growth, aggregate hours were down slightly on the month.”

The Labor Department said the average workweek for private nonfarm payrolls decreased by 0.1 hour to 34.4 hours in April.

“Also, wage growth came in a little light of expectations at 0.2% on the month and 3.2% year-over-year, “CIBC added.
Jim Wyckoff, senior technical analyst with Kitco, said gold’s resilience after what might typically be a gold-bearish jobs report suggests recent selling pressure may have been “exhausted,” enabling the yellow metal to bounce.

Further, he added, the strong ADP report on private-sector payrolls earlier this week already had the market looking for a strong nonfarm number. The Wednesday ADP data showed that private-sector hiring rose by 275,000 last month.

“So gold traders and traders of other markets employed an old trading maxim today: ‘sell the rumor, buy the fact.’” Wyckoff said. “After being pressured most of this week, the gold market bears were too exhausted to press the market any farther down.”

Daniel Pavilonis, senior commodities broker with RJO Futures, commented gold might bounce on ideas that inflation will, in fact, pick up. The metal is often bought as an inflation hedge.

“We’re seeing real underlying inflation start to move higher,” he said. “The Fed is not going to curtail that by raising interest rates….I think gold will slowly but surely move higher.”

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