The gold market is facing downward pressure once again as robust job growth in the United States pushes prices to fresh seven-month lows.
According to the Bureau of Labor Statistics, U.S. nonfarm payrolls increased by a substantial 336,000 in September, surpassing consensus estimates of 171,000. The report also included upward revisions for job gains in August and July. August’s figures were revised from 187,000 to 227,000, while July’s numbers were revised from 157,000 to 236,000.
The persistent strength of the U.S. labor market remains a pivotal factor supporting the Federal Reserve’s commitment to keeping interest rates at restrictive levels for the foreseeable future. This trend has led to higher bond yields and has weighed on gold prices. December gold futures recently traded at $1,825 per ounce, reflecting a 0.37% decline on the day.
Adam Button, Chief Currency Strategist at Forexlive.com, commented, “Treasury yields may push 10s to 5%. In turn, the rise at the long end is doing much of the Fed‘s work for it, which means they probably don’t have to hike. However, it also means the economy—particularly sectors like autos and housing—is particularly vulnerable to a slowdown next year.”
While the headline employment figures exceeded expectations, the report also pointed to some emerging weaknesses in the labor market. Notably, the unemployment rate remained unchanged at 3.8%, slightly missing the expected decrease to 3.7%. Additionally, wage growth has decelerated compared to the faster pace observed during the summer. The report indicated that average hourly earnings increased by 0.2% to $33.88, falling short of the anticipated 0.3% wage increase according to consensus forecasts.
Although the U.S. labor market continues to exhibit robust growth, some analysts believe that this alone will not compel the Federal Reserve to maintain its aggressive monetary policy stance. This could potentially offer relief to the gold market. Paul Ashworth, Chief North America Economist at Capital Economics, noted, “Overall, the report suggests the labor market is enjoying a soft landing. If payrolls continue to rise at an elevated pace, then the Fed might be tempted to push on with further rate hikes. That said, with wage growth and price inflation rapidly fading and the rise in long yields triggering a significant tightening in financial conditions, we still think the Fed is done hiking.”
