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Gold futures hold to $1,800 despite upbeat November U.S. jobs

Published 12/03/2022, 04:46 AM
Updated 12/03/2022, 04:46 AM
© Reuters.

By Barani Krishnan

Investing.com -- Gold retreated into familiar $1,700 territory after the release of another upbeat monthly U.S. jobs report, but futures of the yellow metal were back to their newly-established $1,800 perch before Friday’s close as bulls in the market bet on a smaller Federal Reserve rate hike over next two weeks.

In essence, gold closed the day down, but rose sharply on the week.

The move was in sync with a preview issued by Investing.com before the November non-farm payrolls report, which suggested gold’s action will be in compliance with two timelines: one reacting to Friday’s jobs data and the other more mindful of what the Fed could do the next fortnight.

“Gold has had a nice rally since early November and profit taking could settle in, but a significant pullback doesn’t seem warranted,” said Ed Moya, analyst at online trading platform OANDA. “The economy is slowing down and inflation should steadily decline here and justify a pause in Fed rate hikes after the first quarter.”

Gold futures’ benchmark February contract settled Friday’s trading at $1,809.60 an ounce on New York’s COMEX, down $5.60, or 0.3%. For the week though, it was up 3.1%.

The spot price of gold, which is more closely followed than futures by some traders, remained just below the $1,800 mark, however, trading at $1,799.03 an ounce by 15:20 ET (20:20 GMT).

If spot gold did not go too far below $1,800 after the November jobs report, then it “can extend [the] rally towards $1,821 and $1,842”, Sunil Kumar Dixit, chief technical strategist at SKCharting.com said in the preview issued by Investing.com on Friday.

After 15 weeks of being trapped in the claws of $1,700 pricing or lower, both COMEX and spot gold broke free to hit a 5-month high above $1,800 an ounce on Thursday as easing U.S. inflation and jobs growth pointed to the likelihood of smaller Fed rate hikes from this month.

The United States added 263,000 jobs in November, the Labor Department said Friday in its non-farm payrolls report. It was the smallest employment growth in a month since February 2021 but still more than 30% above forecast levels that proved the tough job the country had in cooling a runaway jobs market that was feeding inflation.

November’s jobs growth came in a shade higher than October’s 261,000, and strongly above the 200,000 forecast by economists. The unemployment rate, however, remained unchanged at 3.7%. The Fed defines a jobless rate of 4% or below as maximum employment.

The Fed aims to ensure optimum job opportunities for Americans while keeping inflation at or around 2% per annum. While it has done exceedingly well on its first target, it is struggling with the second as the Consumer Price Index expanded at a rate of 7.7% in the year to October.

The central bank has identified the dynamic jobs market and non-stop growth in average hourly earnings of Americans as among reasons for such high inflation and has been trying to curb both with aggressive interest rate hikes.

The Fed has added 375 basis points to rates since March. Prior to that, rates peaked at just 25 basis points, as the central bank slashed them to nearly zero after the global outbreak of the coronavirus pandemic in March 2020.

Fed Chairman Jerome Powell said on Wednesday the central bank could start slowing down the pace of U.S. rate hikes as early as December but won’t stop its monetary tightening as inflation was still growing way above levels it desired.

After four straight jumbo-sized hikes of 75 basis points between June and November, markets expect the Fed to impose a smaller increase of 50 basis points at its upcoming rate decision on December 14.

But with November’s non-farm payrolls growth again coming in some 32% higher than forecast, some economists wondered how comfortable the Fed would be in dropping the pace of its rate hikes.

“The wages number is a concern and could stoke second-round effects on inflation,” economist Adam Button said in a commentary posted on the ForexLive forum.

The labor market has been the juggernaut of the U.S. economy over the past two years, spearheading its recovery from the coronavirus pandemic.

Joblessness among Americans reached an all-time high of 14.8% in April 2020, with the loss of some 20 million jobs after the COVID-19 breakout. Since June 2020, however, the Labor Department’s non-farm payrolls report has reported hundreds of thousands of job additions every month, with earnings growth keeping up a steady upbeat momentum too.

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