Gold Drops On U.S. jobs report

Gold Drops On U.S. jobs report

Gold drops on this morning’s U.S. jobs report. The new year has started off with an unexpectedly strong employment picture, leading the markets to once again fear a more aggressive interest rate schedule from the Fed. The yellow metal slumped over $30 an ounce on the news, dropping below $1900.

The January nonfarm payrolls posted a 517,000 gain, their strongest jump since July 2022, FAR above the Dow Jones estimate of 187,000. The unemployment rate dropped to 3.4% beating the 3.6% forecast. That is the lowest jobless level since May 1969. Stock markets slumped following the report, with futures tied to the Dow Jones Industrial Average down about 200 points.

Prices headed for the first weekly drop in seven weeks as the markets worked to digest Wednesday’s 25 basis point interest rate increase from the Federal Reserve. Gold had priced in the smaller interest rate increase ahead of the decision. The Fed raised rates by 50 basis points in December and by 75 basis points each in June, July, September and November. Today’s jobs report has taken the shine off the dovish comments from this week’s FOMC meeting and Fed Chairman Powell’s press conference.

Front-month gold futures fell 0.6% Thursday to settle at $1,930.80 an ounce on Comex, and the April contract slipped 0.8% so far this week. Bullion increased 6.5% in January after gaining 3.8% in December and increasing 7.3% in November. It was the longest consecutive monthly rally since July 2020. The metal fell $2.40 in 2022. Currently, the April contract is down $34.4 (-1.78%) an ounce to $1896.40 and the DG spot price is $1886.30.

Most investors tracked by the CME FedWatch Tool are betting that the Fed will boost rates by 25 basis points in March. The tool shows 94.5% of investors anticipating a 25-basis-point hike, with the remaining 5.5% expecting the Fed to leave rates unchanged. 

Fed Chairman Jerome Powell said at a news conference Wednesday that it was “gratifying” to see inflation slow, but that it was “going to take some time.” He indicated that a couple of additional rate increases are likely appropriate, with no rate cuts this year. Markets subsequently began pricing in a single additional rate hike. 

Smaller rate hikes – and cuts – are seen as bullish for gold, while larger hikes are bearish. That’s because higher rates diminish gold’s attractiveness as a haven asset.

Speculation of a smaller rate hike HAD grown after last week’s release of the December personal consumption expenditures price index, the Fed’s favorite inflation measure, showed the inflation rate cooled. That was seen as an indication that the Fed’s previous rate hikes were starting to make an impact. However, today’s jobs numbers have kicked the legs out of this rosy speculation.

As noted above, Fed officials are closely watching the impact on the labor market of their series of rate hikes. Wednesday, the ADP employment report showed private payroll growth slowed to 106,000 jobs, missing estimates for 190,000. But U.S. weekly initial jobless claims fell for a fourth time in five weeks last week, according to data released Thursday from the Labor Department.

Front-month silver futures increased 0.6 cents Thursday to settle at $23.62 an ounce on Comex, though the March contract is down 0.7 cent in the first four days of the week. Silver fell 0.9% in January after rising 10% in December and increasing 14% in November. It advanced 3% in 2022. The March contract is currently down $0.770 (-3.26%) an ounce to $22.845 and the DG spot price is $22.91.

Spot palladium rose 0.5% Thursday to $1,667.00 an ounce and is up 2.3% this week. Palladium dropped 7.5% in January after tumbling 4% in December. It lost 5.7% in 2022. Currently, the DG spot price is down $22.60 an ounce to $1645.00.

Spot platinum increased 2.4% Thursday to $1,030.00 an ounce and gained 1.2% so far this week. Platinum retreated 4.3% in January after increasing 3.4% last month and rising 11% in November. It surged 10% in 2022. The DG spot price is currently down $27.00 an ounce to $1004.60.

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