June payrolls exceed expectations, sending dollar higher and precious metals lower
Thursday's robust June non-farm payroll report significantly altered Federal Reserve policy expectations, creating immediate headwinds for gold markets as stronger-than-expected employment data reduced the likelihood of near-term monetary accommodation.
The Bureau of Labor Statistics reported that non-farm payroll employment increased by 147,000 positions in June, while the unemployment rate held steady at 4.1%. These figures demonstrated continued labor market resilience, providing Fed policymakers with less justification for implementing rate cuts in the near term.
The employment data's impact on monetary policy expectations was immediate and dramatic. The CME FedWatch tool showed a substantial overnight shift in rate cut probabilities, with the likelihood of a July reduction plummeting from 25% to less than 5%. This recalibration reflects traders' reassessment of the Fed's policy path in light of stronger employment conditions.
The robust data effectively reinforced the Federal Reserve's position that the economy may not require the aggressive monetary accommodation many market participants had anticipated, supporting dollar strength while pressuring non-yielding assets like gold.
The employment report provided substantial support for the U.S. dollar, which advanced 0.42% to reach 97.175 on the dollar index. This currency strength created immediate headwinds for gold markets, with futures declining $21.40 or 0.63% to settle at $3,322 as of 4:00 PM ET.
Despite Thursday's decline, gold maintained a positive weekly performance, advancing 1.54% over the holiday-shortened trading week. This weekly gain, combined with the dollar's fractional decline for the same period, suggests the precious metal's underlying strength remains intact despite the temporary setback.
Silver markets exhibited remarkable resilience, managing to advance despite dollar strength. Silver futures closed Thursday just above $37, representing a $0.31 or 0.85% gain that defied broader precious metals weakness. The white metal's weekly performance proved even more impressive, advancing 1.84% and slightly outpacing gold's gain.
Silver's ability to maintain positive momentum indicates strong underlying demand fundamentals from both safe-haven and industrial applications.
Trade Progress Boosts Market Sentiment
International trade developments contributed to broader market optimism, with successful U.S.-Vietnam negotiations yielding a 20% tariff on Vietnamese goods—lower than anticipated—while American exports enter Vietnam tariff-free. However, significant challenges remain with other major trading partners, including Japan, ahead of the critical July 9th deadline.
The combination of solid employment data and trade progress fueled substantial equity gains, with the Dow Jones and S&P 500 each advancing 0.77%, while the Nasdaq gained nearly 1%. Weekly performance proved even stronger, with all three indices posting gains of 1.5% to 2.3%, and both the Nasdaq and S&P 500 achieving new all-time highs.
While the employment report creates near-term challenges for precious metals, underlying economic and geopolitical uncertainties that have supported gold and silver demand throughout the year remain largely intact, suggesting any weakness may prove temporary.
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