Editor's note: The article was updated to reflect updated gold prices.
(Kitco News) - The gold market has managed to find some solid footing after an initial wave of selling pressure as the U.S. labor market continues to demonstrate resilience.
U.S. nonfarm payrolls rose by 256,000 in December, the Bureau of Labor Statistics reported on Friday. This figure significantly exceeded consensus forecasts, as economists had anticipated job gains of around 164,000.
Meanwhile, the unemployment rate dropped to 4.1%, surpassing expectations. Economists had predicted an unchanged reading of 4.2%.
The gold market experienced a sharp selloff in immediate response to the labor market data, which supports the Federal Reserve’s updated perspective that interest rates are nearing neutral territory. However, in a volatile move, gold has managed to recover all of its gains. As of 9:03 am ET, gold prices were trading at $2,688.80 an ounce, up 0.67% on the day.
According to some market analysts, investors will monitor initial support around $2,650 an ounce to determine whether it holds ahead of the weekend.
Adding to the downward pressure on gold, the labor data revealed that wage inflation remains relatively stable. The report noted that average hourly wages in December increased by 10 cents, or 0.3%, to $35.69. Over the year, wages rose by 3.9%.
Adam Button, a market analyst, pointed out that the unexpectedly strong employment report is driving the U.S. dollar higher, which is consequently weighing on gold prices.
Despite the stronger-than-expected employment numbers, Michael Brown, Senior Research Analyst at Pepperstone, emphasized that this is not a "game-changer" since the labor market has been robust throughout 2024.
“The FOMC remains on track to ‘skip’ the January meeting, leaving the fed funds rate unchanged to allow time to assess the impacts of the 100 basis points of normalization implemented last year. This pause also provides an opportunity to evaluate upside inflation risks and the effects of early policies introduced by the incoming Trump administration,” Brown said in a note. “Looking ahead, 2025 is likely to see further steps toward a more neutral policy stance. However, these steps will probably occur at a slower pace than last year, with the ‘dot plot’ indicating a median expectation of just two 25-basis-point cuts for the year ahead.”
