(Kitco News) - The gold market is gaining bullish momentum as the U.S. labor market showed signs of weakness last month, with the economy creating fewer jobs than expected.
U.S. nonfarm payrolls rose by 73,000 in July, the Bureau of Labor Statistics reported on Friday. This figure missed consensus forecasts, as economists had anticipated job gains of around 106,000.
While job creation is slowing, the unemployment rate ticked higher—rising to 4.2%—in line with economists’ expectations.
In addition to the disappointing headline numbers, revisions to the employment data for May and June have significantly altered the picture of the labor market. Total job growth over those two months was revised down by 258,000. According to the revised data, only 14,000 jobs were created in June and 19,000 in May.
The gold market jumped roughly $30 in the initial reaction to the labor data. Spot gold last traded at $3,333.25 an ounce, up 1.3% on the day.
Despite signs of a weakening labor market, the report noted that wage growth remains solid. Average hourly earnings increased by 0.3% last month to $36.44. Wages have risen 3.9% over the past 12 months.
Supporting gold’s rally is a notable shift in interest rate expectations. Markets are now pricing in a 75% chance of a rate cut in September, followed by another cut in December.
“With this morning’s payroll miss—and the downward revisions that came with it—the Fed will again need to balance a slowing job market with inflation, which isn’t slowing fast enough,” said Chris Zaccarelli, Chief Investment Officer at Northlight Asset Management, in a note.
Jamie Cox, Managing Partner at Harris Financial Group, said the Federal Reserve could end up regretting its decision to keep rates unchanged earlier this week.
“September is a lock for a rate cut, and it might even be a 50-basis-point move to make up for lost time,” he said.
Alongside shifting rate expectations, gold may also benefit from safe-haven demand, as some analysts warn that the weak employment data could spook equity market investors.
“Investors might cheer softer data if it means rate relief is on the horizon—but the road ahead will be bumpy as the market weighs slowing growth against Fed action,” said Gina Bolvin, President of Bolvin Wealth Management Group, in a note.
