In the early New York session on Friday, the price of gold (XAU/USD) surged to new all-time highs above $2,300, defying expectations amid positive labor market data released by the United States Bureau of Labor Statistics (BLS). Despite the robust performance in the job market, gold prices continued their upward trajectory, driven by a combination of factors.
According to the Nonfarm Payrolls (NFP) report, hiring in the US remained strong, with employers adding 303,000 jobs in March, surpassing expectations of 200,000 and the previous reading of 270,000 (slightly revised down from 275,000). The Unemployment Rate also declined to 3.8%, beating both consensus estimates and the prior reading of 3.9%.
While annual wage growth slowed to 4.1% from the previous reading of 4.3%, monthly Average Hourly Earnings grew at an expected pace of 0.3%, higher than February’s reading of 0.2% (revised higher from 0.1%).
Despite the positive labor market data, concerns remain regarding the impact on inflation and market expectations for Federal Reserve (Fed) policy. Robust labor demand could potentially slow the decline in inflation towards the Fed’s target of 2%, influencing expectations for interest rate adjustments. This could increase the opportunity cost of holding non-yielding assets like gold, putting downward pressure on its price.
The yield on the 10-year US Treasury jumped to 4.37% as strong labor market conditions suggest that the Fed may maintain higher interest rates for an extended period.
Traders are now pricing in a 58% chance of a Fed interest rate cut in June, according to the CME FedWatch Tool, down from previous expectations following the upbeat NFP data.
The US Dollar Index (DXY), which measures the dollar against a basket of major currencies, extended its recovery to 104.50 as strong employment conditions bolstered confidence in the US economic outlook.
Earlier in the week, the US Dollar experienced a significant sell-off after weak data on the US Services PMI for March, which fell to 51.4, below expectations of 52.7 and the previous reading of 52.6.
