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The Gold Market Held On To Gains But Still Ended The Week On a Sour Note

gold market week
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EDITOR'S NOTE: The gold market this week hangs in the balance. Last week’s big jobs report gave us “Goldilocks numbers”: it was neither too hot nor too cold. On one hand, it means the Fed doesn’t have to get overly aggressive in hiking rates. Job growth isn’t robust enough to signal an overheating market, yet it’s showing enough growth to possibly avoid a deeper recession. People are finding jobs, but landing one isn’t as immediate as some might expect. Also, wages barely ticked up, easing fears of wage inflation. Still, one data point isn’t a trend, and we’ve seen fakeouts before. The likelihood of gradual (vs aggressive) rate hikes and an inflationary trend that hasn’t yet peaked is probably behind the gold-buying momentum. Despite all this, it’s baffling that Americans aren’t purchasing gold (read: sound money) at these low prices, unlike China and Russia. Perhaps faith in the US dollar, the Fed, and the government is still well-embedded within American consciousness. What do you think? 

The gold market is holding on to modest gains but is still looking to end the week on a sour note below $1,750 an ounce as the U.S. economy continued to add slightly more jobs than expected last month.

Friday, the Bureau of Labor Statistics said 315,000 jobs were created in August The data beat expectations economists were forecasting job gains of around 295,000.

However, the unemployment rate jumped higher than expected, rising 3.7% last month. Economists were expecting the rate to hold steady at 3.5%.

The gold market is seeing some buying momentum following the latest employment report. December gold futures last traded at $1,721 an ounce, up 0.68% on the day.

Although the headline number was positive, the report noted sharp downward revisions for June. The bureau revised June’s employment data down by 105,000 jobs to 293,000. July’s data was revised down to 526,000 from the initial estimate of 528,000.

Also positive for gold are signs that wages could be plateauing, a sign that inflation pressures continue to ease. The report said that average hourly wages increased 0.3% or by 10 last month. Economists were expecting to see a 0.4% increase. For the year wages have risen 5.2%.

The weak wage inflation data’s positive impact on gold could seem counter intuitive for some investors. However, market analysts have noted that easing inflation pressure could prompt the Federal Reserve to slow its pace of monetary policy tightening, which would be positive for gold.

So far, the data has not had much impact on interest rate expectations. According to the CME FedWatch Tool, markets still see a 75% chance that the Federal Reserve raises the Fed Funds rate by 75 basis points later this month.

Avery Shenfeld, senior economist at CIBC, said that although the data was positive, there was still enough “bad news” in the report to bring some relief to markets.

“In an US overheated economy, slightly bad news should be good news for markets, and today’s jobs data had a small taste of that,” he said. “The bond market has been selling off in the days leading up to the data and will see a bit of relief today, and even equities might be happier with a somewhat cooler temperature reading on what has been a too-tight labor market. 

By Jim Wyckoff

For Kitco News

Originally published on Kitco News.

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