Gold prices held steady above $4,300 per ounce as investors assessed an unexpected contraction in the U.S. labor market, easing concerns over potential interest rate hikes.
Despite profit-taking by traders on Monday, gold remained firmly above its 50-day moving average. Last week, gold surged more than 7%, marking its largest weekly gain since late January.
Data released by the U.S. Bureau of Labor Statistics showed that nonfarm payrolls unexpectedly declined by 23,000 last month—well below the market’s forecast of 80,000. With the labor force participation rate continuing to fall, the unemployment rate dropped to 4.1%, the lowest level in two years. Meanwhile, average hourly earnings rose just 3.2% year-on-year, below the expected 3.5%. Hiring figures for the previous two months were also revised downward.
Economists generally agree that the labor market is in a phase of “slow hiring and slow layoffs.” Despite ongoing Middle East tensions now entering their sixth month, the economy appears to have weathered the impact, with domestic demand growth in the second quarter reaching its fastest pace in three years.
Another set of data released on Wednesday from ADP, a payroll services provider, showed private-sector job growth slowed sharply in July, adding only 44,000 jobs.
The latest nonfarm report is likely to encourage the Federal Reserve to delay any rate hikes. Eric Winograd, head of developed market economics at AllianceBernstein, said while the data doesn’t rule out a Fed rate increase, it “certainly weakens the likelihood.”
Inflation data due later this week will provide further clues about the Fed’s monetary path.
Over recent weeks, gold had briefly fallen below the key $4,000 support level, but buying momentum has strengthened steadily. Earlier, war-related uncertainty had pushed gold into a bear market in June. According to the latest data from the U.S. Commodity Futures Trading Commission (CFTC), hedge funds and money managers increased their net long positions in gold to the highest level in over six months as of the week ending August 4.
Last week, inflows into China’s gold ETFs continued, extending the longest consecutive inflow streak since March, further boosting gold prices. The People’s Bank of China also ramped up its gold reserve accumulation, adding 640,000 ounces in July—the 21st consecutive month of increases, according to Friday’s data.
