(Kitco News) - The gold market has dropped into negative territory, and tested support above $1,700 an ounce following stronger-than-expected labor market data.
Friday, the Bureau of Labor Statistics said 263,000 jobs were created in September. The data beat expectations economists were forecasting job gains of around 248,000.
At the same time the unemployment rate fell sharply to 3.5%, down from August’s reading at 3.7%. Economists were expecting the unemployment rate to remain unchanged.
The gold market saw some solid selling pressure in initial reaction to the data as it fell to session lows. December gold futures last traded at $1,715.50 an ounce, down 0.30% on the day.
Economists have said that the latest employment data continues to support the Federal Reserve’s aggressive monetary policy stance. The CME FedWatch Tool shows that markets see a 78% chance of the U.S. central bank raising the Fed Funds rate by another 75 basis points in November.
As the U.S. labor market remains relatively healthy, wages continue to rise, adding to the persistent inflation threat. The report said that average hourly earnings increased by 10 cents or 0.3% to $32.46 last month, in line with expectations.
“Over the past 12 months, average hourly earnings have increased by 5.0 percent,” the report said.
Katherine Judge, senior economist at CIBC said that wages are too elevated for the Fed to achieve their target of 2% inflation.
Along with the better-than-expected headline number, July’s employment numbers were revised higher to 537,000 jobs, up from the previous estimate of 526,000.
Although the unemployment rate fell more than expected, economists said that looking beyond the headline, the drop was due to a decline in the participation rate, meaning that more people left the labor market.
Ira Epstein, director of Ira Epstein Division of Linn and Associates, said that while employment has dropped from its summer highs, it is still too strong for the Fed to slow the pace of its rate hikes.
"I believe that the Fed will not halt interest rate hikes, until jobs growth falls closer to 100K gains. That's a ways off as you can see in this report. Every analysts is looking for when higher interest rates take its bite out of this data. We'll see in December, as November is locked in," he said.
