(Kitco News) - The gold market is experiencing solid momentum, trading near session highs above $2,500 as the U.S. labor market saw a dramatic drop in momentum in July.
U.S. nonfarm payrolls rose by only 114,000 last month, according to the Bureau of Labor Statistics. The monthly figure significantly missed consensus estimates of 176,000.
At the same time, the unemployment rate jumped to 4.3%, up from June’s reading of 4.1%. Economists were expecting an unchanged reading.
The gold market was trading above $2,500 ahead of the July jobs report but is experiencing new momentum in its initial reaction to the disappointing data. December gold futures last traded at $2,521.20 an ounce, up 1.64% on the day.
Along with the disappointing headline number, the report also noted that wage inflation is slowing down. Average hourly earnings increased by 0.2% last month, while consensus estimates called for a 0.3% increase.
“Over the past 12 months, average hourly earnings have increased by 3.6%. In July, average hourly earnings of private-sector production and nonsupervisory employees increased by 9 cents, or 0.3%, to $30.14,” the report said.
Another discouraging sign for the labor market is that previous numbers continue to be revised lower. The report stated that May’s employment numbers were revised down to 216,000, compared to the previous estimate of 218,000. Similarly, June’s employment data was revised to 179,000, down from the initial estimate of 206,000.
“With these revisions, employment in May and June combined is 29,000 lower than previously reported,” the report said.
According to market analysts and economists, the latest employment numbers will likely secure a rate cut at the Federal Reserve’s September monetary policy meeting. Some analysts have suggested that this also solidifies expectations for three rate cuts this year and into 2025.
“On the whole, there is little in this report that is likely to dissuade the FOMC from delivering this cycle's first 25bp cut at the next meeting in September, as was hinted at in this week's statement and press conference, with the Committee now increasingly attentive to both sides of the dual mandate, as opposed to the prior laser-like focus solely on inflation,” said Michael Brown, Senior Research Strategist at Pepperstone.
