(Kitco News) - The gold market is falling into a deeper hole dropping nearly $20 as the U.S. economy continues to see healthy job growth.
U.S. nonfarm payrolls rose by 272,000 last month, according to the Bureau of Labor Statistics. The monthly figure handily beat market consensus estimates of 182,000.
Although the headline employment number beat economist expectations, the unemployment rate rose again last, increasing to 4.0%, up from 3.9% in April. Economists were expecting the unemployment rate to remain unchanged.
The gold market was already seeing solid selling pressure into the report after data from the People’s Bank of China showed that the central bank did not buy any gold last month, ending a record 18 month shopping spree.
Better-than-expected employment data have added to the selling pressure. Analysts note that solid growth in the labor market could force the Federal Reserve to delay interest rate cuts this year.
August gold futures last traded at $2,333.40 an ounce, down more than 2% on the day.
Gold has sold off as markets have started to price out a September rate cut. Thursday, markets saw a more than 70% chance of a cut after the summer; however, that has dropped to a roughly 50% chance following the employment data.
Along with the positive headline number, the report noted that wages could add to the persistent inflation threat. Wages increased 0.4% last month; economists were forecasting a 0.3% increase.
“Over the past 12 months, average hourly earnings have increased by 4.1%,” the report said.
May’s growth comes as the Labor Department downgraded employment numbers in March and May. May’s data was revised down to 165,000, down from the initial estimate of 175,000; at the same time March’s numbers were revised to 310,000 from the previous estimate of 315,000.
While markets are focused on the solid job gains last month, some market analysts note that beyond the headlines, the data shows some cracks in the economy.
In a social media post, Axel Merk, President and Chief Investment Officer of Merk Investments, noted that the number of people working two jobs remains at December’s all-time highs.
At the same time, some analysts note that full-time jobs declined sharply last month while part-time jobs increased.
Michael Brown, Senior Research Strategist at Pepperstone, said that while the latest employment report is causing markets to adjust their interest rate expectations again, it is unlikely to change the Fed’s outlook. He pointed out that inflation data continues to dominate sentiment at the central bank table.
“ FOMC members continue, unsurprisingly, to place greater weight on the inflation side of the dual mandate, and are likely to reiterate next week that they are yet to obtain the 'confidence' being sought on a return towards the 2% target to enable the first rate cut to be delivered. As such, the May CPI report, also due next Wednesday, is likely to be a much more significant event, particularly after the core CPI metric fell, on an annual basis, to a near 3-year low in April,” he said.
