(Kitco News) - The gold market is attracting renewed safe-haven demand after the U.S. labor market showed significant weakness last month, with the private sector contracting for the first time since February 2022, according to private-sector payrolls processor ADP.
ADP reported on Wednesday that 33,000 jobs were lost in June, significantly missing expectations. Consensus forecasts had projected job gains of 99,000. Meanwhile, May’s data was revised down to 29,000 jobs from the initial estimate of 37,000.
“Though layoffs continue to be rare, a hesitancy to hire and a reluctance to replace departing workers led to job losses last month,” said Dr. Nela Richardson, chief economist at ADP. “Still, the slowdown in hiring has yet to disrupt pay growth.”
Gold prices faced solid selling pressure ahead of the employment report, but those losses were reversed in the initial reaction to the disappointing data. Spot gold last traded at $3,348.39 an ounce, up 0.34% on the day.
In addition to the labor market contraction, the report highlighted another bullish factor for gold: wage inflation remains elevated.
According to the report, pay for workers who stayed in their jobs grew 4.4% over the past 12 months, little changed from May. Meanwhile, annual pay growth for those who changed jobs was 6.8% in June, slightly down from 7.0% the previous month.
Some economists say the weakness in the labor market could be the final piece needed to prompt the Federal Reserve to cut interest rates. While a July rate cut is still considered a long shot, expectations are growing. Markets have nearly fully priced in a rate cut by September.
Some economists are issuing a warning, saying that the latest ADP data created downside risk for Thursday’s official government employment data.
“Investor jitters could be a catalyst for a drop in yields tomorrow if the jobs report is weaker than expected. I expect a weaker-than-consensus report, increasing the odds the Fed cuts three times this year,” said Jeffrey Roach, Chief Economist for LPL Financial.
