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Gold prices trying to hold the line at $1800 as U.S. created 263,000 jobs in November

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(Kitco News) - The gold market is trying to hold on to support at $1,800 an ounce as traders react to significant strength in the U.S. labor market, which continues to defy expectations of an impending slowdown.

Friday, the Bureau of Labor Statistics said 263,000 jobs were created in November. The data significantly beat expectations economists were forecasting job gains of around 200,000.

At the same time, the unemployment rate held steady at 3.7%, unchanged from October and in line with expectations.

The gold market was under some modest technical selling pressure ahead of the nonfarm payrolls report and it not seeing much movement in initial reaction. February gold futures last traded at $1,798 an ounce, down nearly 1% on the day.

Not only was the headline job gains better than expected but wage inflation continues to grow. The report said that average hourly wages rose by 18 cents or 0.6% last month to $32.82. Economists were expecting to see wages grow by 0.3%.

For the year ages have jumped 5.1%; economists were expecting to see a 4.6% increase.

Some analysts have said that the latest employment data should force the Federal Reserve to maintain its aggressive monetary policy stance through year end. However, markets still see a nearly 75% chance that it raises interest rates by 50 basis points next month.

“The Fed is looking for a cooling in the labor market in order to get inflation back to target, and the November employment data didn't deliver much on that front,” said Katherine Judge, senior economist at CIBC.

However, Judge added that the report won’t stop the Federal Reserve from raises rate by 50 basis points.

Wednesday, Federal Reserve Chair Jerome Powell, said that it could be appropriate for the U.S. central bank to slow its pace of tightening. However, the central bank has also been clear that it wants to see signs that inflation is cooling before it starts easing the pressure.

Paul Ashworth, chief North America economist at Capital Economics, said that he is not changing his expectations for the Fed to move by 50 basis points in December. He added that the widening gap between the government data and the weak household survey remains a growing concern.

"Household employment fell by a further 138,000 last month and only an even bigger 186,000 decline in the labour force prevented the unemployment rate from rising above 3.7%," he said. "The resilience of the labour market and the resurgence in wage pressures don’t change our view that core price inflation is going to fall more rapidly than the Fed believes, and we still expect officials to slow the pace of tightening, with a smaller 50bp hike later this month."

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