Gold prices see sold bid as U.S. economy created 29k jobs in September

U.S. nonfarm payrolls rose by 29,000 last month, according to the Bureau of Labor Statistics. The monthly figure significantly missed consensus forecasts, as economists had expected job gains of around 89,000.

At the same time, the unemployment rate ticked higher to 4.2%. Economists had expected an unchanged reading of 4.1%.

Analysts had expected to see a strong move in gold if the employment numbers were weaker than expected, and they have not been disappointed. Spot gold last traded at $4,223 an ounce, up 1% on the day.

In comments to Kitco News, Artem Bakushev, Head of Risk at Monaxa, said gold could see further upside as the U.S. dollar struggles in the face of a potential shift in interest rate expectations.

“Just 29,000 jobs were created while unemployment rose to 4.2%—that is not an economy demanding tighter policy; it is one beginning to lose momentum. Gold is rising because traders are now repricing policy error. The Fed focused on yesterday’s inflation problem, while today’s labour data is showing the cost of staying too tight for too long,” he said. “This is the kind of report that changes the market narrative fast. The question is no longer whether the Fed can keep rates high; it is how quickly it has to reverse course if the labour-market slowdown gathers pace.”

Kyle Rodda, Senior Financial Market Analyst at Capital.com, said the disappointing employment data presents a “good news is bad news” scenario for markets as interest rate expectations start to shift.

“These numbers may be seen as evidence that the Fed needs to proceed cautiously with rate hikes from here,” he said. “The presumably lower chances of a hike this month and a flatter futures curve ought to boost market sentiment.”

Along with the headline numbers, the report provided very little good news for the labor market. Both July and August employment numbers were revised lower. The report said August’s data was revised down to 133,000 from the initial estimate of 162,000.

July’s employment numbers were revised down to 21,000 from the previous estimate of 31,000.

The report also noted slow wage growth. Average hourly earnings increased 0.1%, or 5 cents, last month. According to consensus estimates, economists had expected wages to increase 0.3%.
Adam Schickling, Vanguard Senior Economist, said that although the labor market is not accelerating, it still remains relatively resilient; however, he added that this should be enough to keep the Federal Reserve from raising interest rates

The underlying story is still a low-hire, low-fire labor market,” he said. “This report strengthens the case for the Federal Reserve to remain patient. The labor market has not deteriorated sharply, but there is also little evidence that it has meaningfully strengthened, giving policymakers reason to wait for additional data.”

Although gold has seen a renewed bid following the weak labor market data, some analysts note that the precious metal isn’t out of the woods just yet. Although interest rate expectations have come down, some economists note that the threat of higher rates will continue to linger.

“For the Fed, the mediocre September jobs report wasn’t weak enough to shift their focus away from inflation. The September CPI and PPI reports, prices at the pump, and geopolitical developments between now and when the Fed meets next in late October have more power to sway the next rate decision than this jobs report,” said  Bill Adams, Chief U.S. Economist, Fifth Third Commercial Bank.