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Gold prices taking a hit after U.S. economy added 517K jobs in January

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(Kitco News) - The gold market is seeing further selling pressure following exceptionally stronger-than-expected labor market data.

U.S. nonfarm payrolls rose by 517,000 last month, according to the Bureau of Labor Statistics. The monthly figure was significantly above the market consensus estimate of 193,000.

"Job growth was widespread, led by gains in leisure and hospitality, professional and business services, and health care. Employment also increased in government, partially reflecting the return of workers from a strike," the report said.

The U.S. unemployment rate was stronger than expected, dropping to 3.4%, beating market consensus calls of 3.6% in January.

Along with the remarkable headline number, the report said that December and November data was revised higher. December's employment data was revised to 260,000 jobs from the initial estimate of 223,000. At the same time, November's data was revised to 290,000, up from the previous estimate of 256,000.

The gold market has seen some technical selling pressure after hitting a fresh nine-month high mid-week after markets interpreted comments from Federal Reserve Chair Jerome Powell as dovish. The better-than-expected employment data has added some momentum to the renewed selling pressure. April gold futures last traded at $1,917 an ounce, down 0.71% on the day.

While employment data was better than expected, inflation pressures remained relatively subdued as wages rose in line with expectations. The report said that wages increased 0.3% or by 10 cents last month to $33.03.

"Over the past 12 months, average hourly earnings have increased by 4.4%," the report said.

The gold market could be at risk for a deeper correction as economists have said that surging momentum in the U.S. labor market could force the Federal Reserve to maintain its aggressive policy stance longer than expected.

The Federal Reserve has said that it needs to see softness in the labor market before they are confident that they have inflation under control.

"Overall, this is clearly a tight labor market that proves that the Fed has more work to do in order to cool activity," said Katherine Judge, senior economist at CIBC.

However, Andrew Hunter, senior U.S. economist at Capital Economics, said that he is not convinced the Federal Reserve will continue to raise interest rates in the second half of the year. He added that the report showed wage inflation isn't heating up.

"Although the report at face value supports the Fed's plans to hike interest rates twice more over the next few months, it underlines our belief that core inflation can continue to fall sharply even without a significant weakening in labor market conditions," Hunter said.

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