November 18, 2022

Gold posts solid price gains after negative US jobs reports

Non-farm payrolls report showed a surprise drop in new jobs, raising expectations for higher interest rates and drawing investors to safe-haven bullion.

Gold prices hit their highest level since early November at $1,150 an ounce by 0925 GMT 4:25 a.m ET after gaining 1% following the release of the data, which was much weaker than expected with only 74000 new positions created last month compared to forecasts for about 20000 more positions, or 100000 total jobs added if you include revision to previous months’ reports.

According to the U.S. Bureau of Labor Statistics, average hourly earnings were flat during that period at $23.98 per hour.

The report also showed that the unemployment rate fell from 8.3% to 8.2%, as more people exited the labor force and the number of Americans with a job fell by 192 thousand which could be a sign of a low labor participation rate which is hovering around 30-year lows, as Americans are still being discouraged by the weak job market despite lower current figures.

The headline number was much worse than expected and it also shows that wage growth remained steady at 2.2% year on year, said VTB Capital analyst Andrey Kryuchenkov, adding that Ahead of next week’s FOMC meeting, the dollar has weakened noticeably against other major currencies, while gold is firmer.

We feel that risk aversion will remain high for longer amid concerns over the strong U.S. dollar and weak economic growth prospects among emerging economies.

Gold prices are likely to remain under downward pressure until the U.S. Federal Reserve releases the minutes of its March policy meeting, he added.

The FOMC is expected to release minutes on Wednesday at 2 p.m., while Fed chairwoman Janet Yellen will hold a press conference at 2:30 p.m.

Prices have fallen more than 20% since September 2011, hurt by uncertainty over what course U.S. monetary policy will take this year. Higher interest rates would boost the opportunity cost of holding non-yielding bullion and reduce demand for the metal as an inflation hedge.

As a result, gold prices could decline further in the near term, but any pullback should be limited as investors look to pick up the metal at lower levels, VTB’s Kryuchenkov said.

Gold is highly sensitive to rising interest rates, which lift the opportunity cost of holding nonyielding bullion while boosting the dollar in which it is priced. Around $1 trillion was wiped off gold holdings earlier this year on outflows that followed Federal Reserve Chairman Ben Bernanke’s comments about the future of monetary stimulus.

However, the metal has risen more than 5% since U.S. jobless claims fell to a 4-1/2 year low last week and as traders see rate rises further off after recent mixed U.S. data and disappointing factory activity surveys from Europe and China.