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Look past jobs report and focus on Friday CPI - Commerzbank

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(Kitco News) - Markets continue to digest the latest better-than-expected employment data. However, one international bank recommends that gold investors pay more attention to impending inflation data.

Commodity analysts at Commerzbank said that Friday's nonfarm payrolls data, which saw the unemployment rate drop to 8.4%, could weigh on gold in the near term. Still, they added that inflation data, which comes out at the end of the week will provide long-term momentum for the precious metal.

The analysts noted that the unemployment rate at 8.4% is still more than double what it was before the COVID-19 pandemic.

"Furthermore, the Fed had recently stressed that it would not automatically raise interest rates in response to a low unemployment rate, but only if this came in conjunction with growing inflationary pressure," they said. "Thus the labor market data will do little to change the Fed's monetary policy, especially as the increase in the number of jobs created has slowed for the second consecutive month and not even half of the massive number of jobs lost in March and April have been recovered.

Looking at inflation, Commerzbank said that they will be interested to see if July's rise continued into August.

"The July data had been surprisingly high. If this were to happen again, inflation expectations could also rise further, pushing real interest rates even deeper into negative territory," they said.

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