Gold Prices Drop Sharply As U.S. Economy Creates 353K Jobs In January

(February 2, 2024 -  Neils Christensen)

(Kitco News) - The gold market has been hit with solid selling pressure as the U.S. labor market continues to fire on all cylinders. At the same time, higher wages are creating further disappointment for investors expecting the Federal Reserve to cut rates in March.

U.S. nonfarm payrolls rose by 353,000 last month, according to the Bureau of Labor Statistics. The monthly figure handily beat market consensus estimates of 187,000.

“Job gains occurred in professional and business services, health care, retail trade, and social assistance. Employment declined in the mining, quarrying, and oil and gas extraction industry,” the report said.

At the same time, the unemployment rate remained unchanged at 3.7%; economists were expecting the rate to rise to 3.8%.

The stronger-than-expected employment data is weighing on gold with prices dropping by nearly $20 in initial reaction. April gold futures last traded at $2,058.50 an ounce, down 0.61% on the day.

Not only did the headline employment numbers significantly beat expectations but the report also noted major revisions in the last two months of 2023. The report said that November’s employment numbers were revised up to 182,000 jobs, compared to the previous estimate of 117,000. Meanwhile, December saw job growth of 333,000, up from the initial estimate of 182,000.

Along with the significant job gains last month, the report also noted that workers saw a sharp rise in their paychecks. Average hourly wages increased by $0.19 or 0.6% to $34.55 last month, significantly beating expectations of a 0.3% increase.

In the last 12 months average hourly wages have increased 4.5%, the report said.

According to some economists, the rise in wages continues to highlight the ongoing inflation threat, which will force the Federal Reserve to maintain restrictive interest rates for longer than expected.

Market expectations for a March rate cut have dropped sharply in initial reaction to the latest employment data. According to the CME FedWatch Tool, markets see only a 21.5% chance of easing next month, down sharply from 34%. Last week markets saw nearly a 50/50 chance of easing.

Commodity analysts note that the Federal Reserve's higher-for-longer stance will continue to keep gold prices in a broad consolidation pattern; however, the precious metal is still expected to hold critical support above $2,000 as eventually easing this year supports the market.