- Gold price faces an intense sell-off as US labor market data outperform expectations.
- The Unemployment Rate remains steady at 3.7% and wage growth escalates.
- Robust US economic prospects have trimmed prospects of a Fed rate cut in March.
Gold price (XAU/USD) has been heavily dumped by investors as the labor demand remains stronger-than-projected in December. As per the United States Nonfarm Payrolls (NFP) report, US employers hired 216K workers, which were higher than expectations of 170K and the prior reading of 173K. Market participants anticipated moderate job gains as the pace of frequent job change by individuals has slowed due to easing labor demand.The Unemployment Rate has remained steady at 3.7% while market participants projected a higher figure at 3.8%.
Other employment-related economic indicators such as ADP Employment Change and weekly jobless claims data, released on Thursday had already set a higher base for the official employment data.
Meanwhile, Average Hourly Earnings grew at a steady pace of 0.4% while investors projected wages rising at a slower pace of 0.3%. The annual wage data rose sharply by 4.1% against expectations of 3.9% and the prior reading of 4.0%.
Market participants have turned cautious about near-term demand for bullions as prospects in favour of rate cuts by the Federal Reserve (Fed) from March are expected to drop further. Unlike other members of the Group of Seven economies that are struggling with high interest rates, the labor market in the US economy is performing well . This strength could allow the Fed to leave interest-rate cuts for the second quarter of this year.
Daily Digest Market Movers: Gold price dives on upbeat US NFP report
- Gold price falls vertically as the US Bureau of Labor Statistics (BLS) has reported a upbeat US labor market report for December.
- The economic data has outperformed on all parameters such as labor demand, jobless rate, and wage growth.
- The upbeat US labor market data is expected to support Fed policymakers to favour for keeping interest rates high for a longer period.
- As per the CME FedWatch tool, chances of an interest rate cut in March have dropped to 52% after the release of the stronger-than-projected official labor market report.
- Market participants are also reconsidering bets supporting a rate-cut campaign from March as robust economic prospects for the US economy could imbed inflationary pressures above 2%.
- This week, the US ISM reported a strong rebound in Manufacturing PMI as firms remain optimistic about lower borrowing costs this year.
- Going forward, investors will focus on the ISM Services PMI, which will be published at 15:00 GMT.
- The Services PMI represents the service sector, which accounts for two-third of the US economy. It is seen slightly down at 52.6 against November’s reading of 52.7.
- Meanwhile, the US Dollar Index has printed a fresh three-week high near 103.00 as investor risk-appetite is easing swiftly. 10-year US Treasury Bond yields have climbed to 4.07% amid a cautious market mood.
Technical Analysis: Gold price drops to near $2,030
Gold price fell like a house of cards after the release of the upbeat US labor market data. The precious metal has come out of Thursday’s trading range after breaking below $2,036. The downside in the precious metal could expand to $2,010 if it fails to find a firm-footing.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
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