Gold prices climbed to session highs on Friday following weaker-than-expected U.S. labor market data. According to the Bureau of Labor Statistics, nonfarm payrolls increased by 142,000 in August, falling short of the consensus estimate of 164,000.
Despite the cooling labor market, the decline appeared orderly. The unemployment rate edged down to 4.2%, aligning with expectations and improving from July’s unexpected rise to 4.3%.
In response to the underwhelming employment figures, the gold market saw significant gains. December gold futures were last traded at $2,558.60 per ounce, marking a 0.61% increase for the day.
Although the headline job growth figure missed projections, there was positive news for American workers. Wages rose by 0.4%, surpassing the anticipated 0.3% increase and improving from July’s 0.2% rise. The report noted that average hourly earnings had increased by 3.8% over the past year.
The report also revealed downward revisions to previous employment figures. July’s payrolls were revised to 89,000 from an initial estimate of 114,000, and June’s figures were adjusted to 118,000 from 179,000. This means that employment numbers for June and July were a combined 86,000 lower than previously reported.
Market sentiment shifted towards a dovish stance following the employment report, bolstering gold prices. The probability of a significant interest rate cut by the Federal Reserve later this month increased, with the CME FedWatch Tool indicating a 49% chance of a rate cut on September 18.
Nevertheless, some analysts remain cautious. Michael Brown, Senior Research Strategist at Pepperstone, characterized the report as mixed, which could complicate the Federal Reserve’s decision-making process.
“Doves might see the slower payroll growth as a reason for a more substantial 50 basis point cut. Conversely, hawks could argue that the relatively steady growth compared to July and strong earnings growth justify a more modest 25 basis point reduction. My expectation leans towards the latter, especially to avoid potentially alarming market reactions,” Brown noted in a statement.
