(Kitco News) - After seeing significant selling pressure since the start of the week, the gold market is trying to find some solid ground as the private sector created fewer jobs than expected in August.
Private-sector payroll processor ADP said Wednesday that 38,000 jobs were created in August, down from 46,000 in July. The data came in weaker than expected, as consensus estimates had forecast a gain of 47,000 jobs.
The report said this was the slowest pace of job creation since January. The manufacturing sector led the broader economy in job losses, while professional services and information also shed workers.
The gold market is seeing limited buying interest in the initial reaction to the disappointing labor market data. Spot gold last traded at $4,335.20 an ounce, up 0.20% on the day.
Although job growth has missed expectations for three consecutive months, markets are still pricing in a rate hike this month. According to the CME FedWatch Tool, markets see a 62% chance of a rate hike on Sept. 16.
Last week, Federal Reserve Chair Kevin Warsh noted that although there are areas of concern in the labor market, the central bank needs to focus on inflation and price stability.
However, some analysts have noted that further weakness in the labor market could keep the Federal Reserve on the sidelines, which would be positive for gold.
“For policymakers, this is the data point that hands the doves the microphone and forces the hawks into silence, and unless Friday's Nonfarm Payrolls stages a dramatic rescue, the path toward a more aggressive Fed pivot just got considerably shorter,” said Petros Pantzari, Chief Dealer at Monaxa, in a note to Kitco News.
He added that the disappointing data is changing the narrative from "gradual cooling" to "labour market cracking."
Waleed Said, Technical Analyst at GivTrade, said that the data continues to flash warning signs for the U.S. labor market. However, he added that the Federal Reserve doesn’t pay much attention to this report.
“Hiring weakness puts the dollar under pressure because it strengthens the argument for a softer Federal Reserve, while gold stands to benefit from lower-rate expectations and rising demand for protection,” he said. “Short term, this report does favour gold, but rate hike probabilities say otherwise. Now all eyes will turn to NFP data coming this Friday.”
Although momentum in the labor market is slowing, the weakness is also helping to ease wage inflation. The report said that workers who stayed in their jobs saw their annual wage growth hold steady at 3%. Meanwhile, workers who changed jobs saw their annual wage growth drop to 4.7%, down from 4.8% in July.
"Pay can tell us a lot about today's choppy hiring. To understand hiring patterns, you have to look deeply into where pay growth is accelerating, where it's slowing, and for whom. Once-predictable wage growth has been overtaken by the complexities of demographic change, persistent inflation, and AI's effects on jobs,” said Dr. Nela Richardson, Chief Economist at ADP.
