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Gold prices holding near session highs as U.S. economy created 187K jobs in August, beating expectations

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(Kitco News) - Gold prices are holding steady gains near session highs as the U.S. labor market appeared relatively stable at lower levels last month.

U.S. nonfarm payrolls rose by 187,000 in August, the Bureau of Labor Statistics said Friday. The monthly figure was above the market consensus estimate of around 169,000.

However, at the same time, the U.S. unemployment rate surged higher, rising 3.8%, beating market consensus calls looking for an unchanged reading of 3.6% in March. The rise in the unemployment rate is also partly due to an increase in the participation rate, which pushed to 62.8%, up from July's level of 62.6%, according to some economists.

The gold market is seeing a little bullish momentum in its initial reaction to the latest employment data. December gold futures last traded at $1,977 an ounce, up 0.56% on the day.

While the headline number came in slightly above expectations, analysts note that along with the rise in the unemployment rate, there are other signs that slack is slowly starting to build in the labor market. The report showed sharp downward revisions to June and July's employment data. July's employment data was revised down to 157,000 jobs, compared to the initial estimate of 187,000. Meanwhile, June's numbers were revised down to 105,000 from the previous estimate of 185,000.

Another factor helping to support gold prices is cooling wage inflation. The report said that average hourly wages increased 0.2% or by eight cents last month to $33.82. According to consensus estimates, economists were expecting to see wage growth of 0.3%.

Naeem Aslam, chief investment officer at Zaye Capital Markets, said that the report shows that the labor market remains on track to cool, which gives the Federal Reserve room to push more neutral monetary policies.

"Basically, the data has confirmed once again that a softening of the job market is very much in play while the overall picture for the labor market is still strong. So, most traders believe that the Fed is more likely to stay on the sidelines, but at the same time, inflation pressure remains intact," he said. " In terms of the gold price, Today's data brought further good news for the precious metal. It is likely that the uptrend that we have seen for the past few days will remain intact, and the precious metal will close the week with some solid gains. However, going forward, it is likely that traders will begin to shave some profit as the Fed's meeting remains an outlier."

Andrew Hunter, deputy chief U.S. economist at Capital Economics, said that all the pieces of the August jobs report show that the labor market conditions are approaching pre-pandemic levels, which means the Fed is unlikely to tighten interest rates any further.

"This reinforces our view that the Fed's next move will be an interest rate cut in the first half of next year," he said in a note. "We continue to expect weaker labor market conditions to contribute to a rapid decline in core inflation, convincing the Fed to cut rates more aggressively next year than markets are pricing in."

Markets are slowly starting to price out a rate hike before the end of the year. According to the CME FedWatch Tool, markets have nearly completely priced in no change later this month. At the same time, they see a 60% chance that the Federal Reserve will leave interest rates unchanged in November. Before the employment data, markets saw a 50/50 chance of one more rate hike this year.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.