(Kitco News) – The gold market is seeing surging selling pressure as the U.S. economy created far more jobs than expected, raising expectations that the Federal Reserve has room to raise rates to cool inflation concerns.
U.S. nonfarm payrolls rose by 172,000 last month, according to the Bureau of Labor Statistics. This monthly figure significantly beat consensus forecasts, with economists expecting job gains of around 85,000.
At the same time, April’s employment data saw a significant upward revision, with the government reporting that 179,000 jobs were created that month, compared with the initial estimate of 64,000.
Meanwhile, the unemployment rate held steady at 4.3%, in line with consensus forecasts.
The gold market has struggled through most of the week as prices have been unable to hold gains above $4,500. The precious metal dropped sharply in its initial reaction to the better-than-expected labor market data. Spot gold last traded at $4,441.03 an ounce, down 0.77% on the day.
Analysts have been warning investors that gold remains vulnerable to growing expectations that the Federal Reserve will have to tighten monetary policy by year-end. In a comment to Kitco News, Naeem Aslam, Chief Investment Officer at Zaye Capital Markets, said that the latest labor market data showed the economy isn’t cooling enough for the Federal Reserve to relax its stance.
“This is a hawkish jobs report: it supports a stronger dollar, higher yields, and pushes back against aggressive rate-cut expectations. Gold may come under pressure initially as yields and the dollar rise, unless geopolitical fears keep safe-haven demand alive,” he said.
The report also showed that wage inflation is rising in line with expectations. Average hourly earnings increased by 12 cents, or 0.3%, last month. Over the past 12 months, average hourly earnings have risen by 3.4%.
Chris Zaccarelli, Chief Investment Officer at Northlight Asset Management, said that with healthy labor market data, the focus is now squarely on inflation pressures.
“If the economy can continue to create jobs and the unemployment rate can stay low (currently at 4.3%), all while keeping inflation under control, we could be in the sweet spot. The Fed won’t be able to cut rates with inflation this high, but if inflation remains under control — especially with the disruptions in the Strait of Hormuz — then it won’t feel pressure to raise rates either,” he said.
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