WHAT YOU NEED TO KNOW
  • U.S. nonfarm payrolls rose by 29,000 in September, far below economists’ forecast of roughly 89,000.
  • The unemployment rate increased to 4.2%, while average hourly earnings gained just 0.1%.
  • Spot gold climbed 1% to $4,223 an ounce as investors reconsidered interest rate expectations.
  • July and August employment totals were revised lower, adding to signs of slower labor market growth.
  • Analysts cautioned that inflation data and other developments could still shape the Federal Reserve’s late October decision.

DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.

Gold prices gained powerful bullish momentum after September employment data showed the U.S. labor market expanding far more slowly than economists expected. Renewed safe haven demand lifted the precious metal as investors reconsidered the outlook for interest rates.

U.S. nonfarm payrolls increased by 29,000 last month, according to the Bureau of Labor Statistics. Economists had expected the economy to add about 89,000 jobs, leaving the reported gain well below the consensus forecast.

The unemployment rate also moved in the wrong direction, rising to 4.2% from 4.1%. Economists had anticipated that the rate would remain unchanged at 4.1%.

Gold responded sharply to the disappointing labor figures. Spot gold last traded at $4,223 an ounce, representing a 1% gain on the day.

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Analysts had expected weaker employment numbers to produce a strong move in the metal, and the market delivered. The renewed buying reflected changing expectations about monetary policy and increased demand for a safe haven asset.

Artem Bakushev, Head of Risk at Monaxa, told Kitco News that gold could have room to climb further as the U.S. dollar struggles with a possible change 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.”

Bakushev argued that the Federal Reserve had concentrated on an earlier inflation problem while current labor data revealed the consequences of maintaining restrictive policy for too long. He said the report could quickly reshape the market’s central debate.

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“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,” Bakushev said.

Kyle Rodda, Senior Financial Market Analyst at Capital.com, described the disappointing report as a “good news is bad news” situation for financial markets. He said interest rate expectations were beginning to adjust in response to the numbers.

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

The weakness was not limited to the September headline figure. Employment totals for both July and August were revised lower, further reducing the strength shown in earlier reports.

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August employment growth was revised down to 133,000 from the initial estimate of 162,000. July’s total was reduced to 21,000 from the previous estimate of 31,000.

Wage growth also arrived below expectations. Average hourly earnings rose 0.1%, or 5 cents, last month, compared with the 0.3% increase economists had forecast.

Adam Schickling, Vanguard Senior Economist, said the labor market was not accelerating but remained relatively resilient. He added that the report should be sufficient to keep the Federal Reserve from raising interest rates.

“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.”

Despite gold’s renewed strength, some analysts warned that the precious metal was not yet clear of the risk posed by higher rates. Interest rate expectations have declined, but economists said the possibility of further tightening has not disappeared.

Bill Adams, Chief U.S. Economist, Fifth Third Commercial Bank, said the September employment report was not weak enough to pull the Federal Reserve’s attention away from inflation. He pointed to coming inflation reports, gasoline prices and geopolitical developments as potentially more influential before the Federal Reserve meets in late October.

“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,” Adams said.

DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.