Gold rises early Wednesday and again later in the trading day on jobs reports that indicate the U.S. job market is weakening, potentially encouraging a Federal Reserve interest rate cut sooner rather than later.
Private job creation slowed more than expected in May, according to this morning’s report from ADP. The payroll processing firm’s data shows companies adding 152,000 jobs last month, less than the downwardly revised 188,000 in April and below the Dow Jones forecast of 175,000. This was the lowest monthly level since January.
Yesterday’s report by the Labor Department showed U.S. job openings in April fell to the lowest level since February 2021. Investors are now awaiting the U.S. monthly jobs report for May from the Labor Department on Friday.
The Fed closely watches both labor market and inflation data when setting monetary policy. A tighter labor market may provide the impetus for the Fed to start cutting interest rates. Lower interest rates are typically bullish for gold, making them a more attractive alternate investment than other assets.
August gold futures fell 0.9% Tuesday to settle at $2,347.40 an ounce on Comex, though the most-active contract advanced $1.60 in the first two days of the week. Bullion gained 1.9% last month after rallying 2.9% in April and rising 8.9% in March – the biggest monthly gain in more than three years. May’s was the fourth consecutive monthly rally. The metal rose 13% in 2023. The August contract is currently up $14.6 (+0.62%) an ounce to $2362.10 and the DG spot price is $2340.40.
The World Gold Council reported Tuesday that central bank purchases of the precious metal surged in April after a rapid rise in prices in March. Net purchases totaled 33 metric tons in April, up from a revised 3 metric tons in March. Eight central banks increased gold reserves by a metric ton or more in April. The central bank of Turkey was the biggest buyer. Other significant buyers included the central banks of Kazakhstan, India, Poland, Singapore, Russia, and the Czech Republic, the report said. Chinese central bank buying slowed significantly, it said.
In economic news, U.S. job openings fell more than forecast in April in the JOLTS report. It showed the ratio of job openings to workers fell almost 300,000 from March to 8.06 million. The April figure was almost 19% lower than a year earlier.
The ADP Employment Report on Wednesday is expected to show a drop in May from April. Additionally, the Labor Department will report weekly initial jobless claims for last week on Thursday and the closely anticipated monthly jobs report for May on Friday.
Last week, the personal consumption expenditures price index, the Fed’s favorite inflation measure, showed that “core” PCE, excluding volatile food and energy costs, increased 2% in April from a month earlier and 2.8% from a year earlier. Including food and energy costs, the report released Friday showed that “headline” PCE rose 0.3% and 2.7%, respectively. The Fed has a 2% target for inflation.
The central bank has raised interest rates by 5.25 percentage points since March 2022 to rein in inflation but has held rates steady for almost a year. The central bank was widely expected to begin a series of rate cuts in the first part of this year, but the timeline has been pushed back by persistently high inflation.
Almost 100% of the investors tracked by the CME FedWatch Tool are betting that the Fed will keep rates unchanged next week. More than 80% of investors also expect the Fed to hold rates at current levels in July. Most see a rate cut in September. Persistently high inflation caused the Fed to keep interest rates unchanged at 5.25% to 5.50% at policymakers’ last meeting.
July silver futures fell 3.8% Tuesday to settle at $29.62 an ounce on Comex, and the front-month contract dropped 2.7% in the first two days of the week. Silver surged 14% last month after rising 7% in April and gaining 8.9% in March. It ticked up 0.2% in 2023. The July contract is currently up $0.138 (+0.47%) an ounce to $29.755 and the DG spot price is $29.59.
Spot palladium added 0.2% Tuesday to $927.00 an ounce and is up 1% so far this week. Palladium declined 5.1% in May after losing 5.9% in April and advancing 7.7% in March. Palladium plummeted 38% last year. Currently, the DG spot price is up $9.50 an ounce to $937.50.
Spot platinum decreased 2.5% Tuesday to $998.30 an ounce and is down 4.2% so far this week. Platinum advanced 10% in May after gaining 3.1% in April and rising 3.3% in March. Platinum dropped 6.8% in 2023. The DG spot price is currently down $2.80 an ounce to $992.30.
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