September 1, 2023
Gold prices have held above the critical mid-$1,900 level but experienced a slight decline after a higher-than-expected reading for inflation raised concerns about potential Federal Reserve rate hikes. Meanwhile, forecasts suggest a potentially significant drop in U.S. job numbers for August.
Economists anticipate that non-farm payrolls for August will show an increase of just 170,000 jobs, compared to July’s addition of 187,000 jobs, marking the smallest monthly job expansion since February 2021. The Federal Reserve closely monitors data on U.S. jobs and wages to assess their impact on inflation and their potential influence on the central bank’s upcoming decision on interest rates, scheduled for September 20.
Separately, the Personal Consumption Expenditures (PCE) Index, another measure of inflation, revealed a 3.3% year-over-year expansion in July, further deviating from the Fed‘s annual 2% target. This outcome has raised concerns that the central bank may not deviate significantly from its hawkish stance, which has weighed on gold prices.
On Thursday, the most-active December gold futures contract on the New York Comex settled at $1,965.90 per ounce, marking a $7.10, or 0.4%, decline for the day. Earlier in the session, it reached a five-week high of $1,977.05. For the entire month of August, gold posted a 2% loss.
Spot gold, which is more closely monitored by some traders than futures contracts, dropped by $1.85, or 0.1%, to reach $1,940.56 per ounce by 16:05 ET (20:05 GMT). Spot gold had reached a four-week high of $1,949.05 on Wednesday but ultimately recorded a 1.2% loss for August.
Craig Erlam, an analyst at the online trading platform OANDA, stated, “Gold has been buoyed in recent days by the U.S. data we’ve seen, particularly the [jobs] figures which, if combined with a weak report tomorrow, could strongly point to cracks appearing in the labor market.”
He added, “We’re not talking about anything too substantial at this point but certainly less heat which the Fed will be comforted by, potentially enough to pause again in a few weeks,” in reference to the central bank’s upcoming interest rate decision on September 20.
Despite the significant monetary tightening measures employed by the Federal Reserve over the past 18 months to combat inflation resulting from the COVID-19 pandemic and related relief spending, inflation has retreated notably in the United States. However, the central bank has not been able to swiftly bring key inflation indicators back to the levels of 2% and below, which it maintained before the pandemic.
The Federal Reserve attributes this challenge to stronger-than-expected job and wage growth since the outbreak of COVID-19, which has continued to support robust consumer spending by Americans.
