(Kitco News)— Gold is experiencing higher price volatility as traders attempt to gauge the health of the U.S. labor market. Although fewer jobs were created last month, wages increased, and the unemployment rate dropped.
U.S. nonfarm payrolls rose by 143,000 in January, the Bureau of Labor Statistics reported on Friday. This figure missed consensus forecasts, as economists had anticipated job gains of around 169,000.
While job creation is slowing, the unemployment rate fell to 4.0%, down from December’s reading of 4.1%. Economists had expected an unchanged reading.
At the same time, wage inflation increased, with average hourly earnings rising 0.5% to $35.87.
“Over the past 12 months, average hourly earnings have increased by 4.1%,” the report said.
In an initial reaction to the mixed employment data, gold prices surged to session and record highs. However, those gains quickly faded. As the dust settles, gold prices are trading roughly where they were before the report was released. Spot gold last traded at $2,630.80 an ounce, up 0.29% on the day.
While last month’s job growth was weaker than expected, the report noted improved revisions for November and December. November’s data was revised up to 261,000 from the previous estimate of 212,000. Meanwhile, December’s employment data was adjusted to 307,000, up from the initial estimate of 256,000.
Although the headline employment data missed expectations, Michael Brown, Senior Research Analyst at Pepperstone, said that it isn’t a “game-changer” for market expectations. He added that the miss could be explained by weather-related issues.
“Particularly with the labor market continuing to tick along well, it seems likely that the FOMC will remain on the sidelines for the time being, as January’s ‘skip’ becomes a more prolonged ‘pause’ in the easing cycle. While on pause, the FOMC will continue to pay close attention to incoming data, as risks around the dual mandate remain broadly balanced, while also digesting the impact of President Trump’s trade policies and the 100 basis points of easing delivered last year,” he said. “Still, the direction of travel for rates remains downward, albeit at a much slower pace than last year. Two 25-basis-point cuts in 2025 remain the base case, with the first of those cuts likely to be delivered, at the earliest, by the end of the first half of the year.”
Chris Zaccarelli, Chief Investment Officer for Northlight Asset Management, said that although January’s weak job growth was disappointing, the first month in the new year can be noisy. He added that there are bigger risks to the US economy than the labor market.
“We think the bigger issue is around tariffs and worry that a trade war could develop – either as an intentional strategy or even as a result of miscalculation between the US and other trading partners – and this is what can interrupt the bull market and economic expansion,” Zaccarelli said. “While we remain cautiously optimistic in early 2025, we see much more downside potential this year than we have in the prior two years and believe now is a time for caution and a dialing back of risk-taking.”
