Gold at month-high as modest U.S. jobs growth plays down rate hike fears

© Reuters.

By Barani Krishnan

Investing.com -- Gold hit a one-month high Friday in a sign that it may be ready to break free of the mid-$1,800 range it has been trapped in the past four weeks after benign U.S. jobs growth for February signaled a smaller rate hike than initially thought.

The United States added 311,000 jobs in February, the Labor Department said Friday, reporting a number that again beat forecasts but not as much as in January, in what could be a relief to the Federal Reserve’s task of lowering inflation amid persistently strong labor and wage growth.

Last month’s growth in so-called nonfarm payrolls comes after the outsized addition of 504,000 jobs in January. Economists had forecast a growth of 205,000 in February and 185,000 in January. In a further relief to the Fed, the unemployment rate rose to 3.6% last month from 3.4% in January.

Responding to the latest nonfarm payrolls report, gold for April delivery on New York’s Comex settled Friday’s trading at $1,867.20 an ounce, up $32.60, or 1.8%. The session high was $1,871.85, a peak since the $1,884.60 registered on Feb. 9.

For the week, April gold rose 0.7%.

The spot price of gold, more closely followed than futures by some traders, was at $1,862.90 by 15:00 ET (20:00 GMT), up $32.02, or 1.8% on the day. The session high for spot gold was $1,867.36.

Spot gold looks poised to creep closer to $1,890 if the current upward momentum holds, said Sunil Kumar Dixit, chief technical strategist at SKCharting.com.

“Wild swings of $40 from a $1,827 low to 1867 high, witnessed post NFP, suggests an opening of new ground towards $1,878-$1,883 if prices can sustain above the $1,852-$1,848 dynamic support zone,” said Dixit. “If this fails, then spot gold can return to the $1,832-$1,828 support zone.”

Until Friday’s release of the latest nonfarm payrolls report, the Fed had been expected to settle on a 50-basis point hike at its next rate decision on March 22. The relatively softer growth in February payrolls versus January prompted some analysts to think the central bank might opt for a 25%-basis point hike instead, although there was not enough consensus on that.

“The unemployment rate was higher and wages were lower than expectations,” economist Greg Michalowski said in a post on the ForexLive forum. “Will the change in the calculus influence the Fed as well? Will they hold off on a 50 bp hike?”

The Fed has said that a labor market slowdown will be necessary to cool inflation that proved more stubborn than thought.

One of the Fed’s biggest challenges has been stellar jobs data as the nation’s labor market continues to stun economists with stupendous growth month after month.

While policymakers the world over typically celebrate on seeing good jobs numbers, the Fed faces a different predicament. The central bank wishes to see an easing of labor conditions that are a little “too good” now for the economy’s own good — in this case, unemployment at more than 50-year lows and average monthly wages that have grown without stop since March 2021.

Such job security and earnings have cushioned many Americans from the worst price pressures since the 1980s and encouraged them to continue spending, further feeding inflation.

Economists say monthly jobs numbers need to grow meaningfully below expectations to create some ding at least in employment and wage security which the Fed suggests are its biggest two headaches now in fighting inflation.

Inflation, as measured by the Consumer Price Index, hit a 40-year high of 9.1% in the United States during the year to June 2022. It has moderated since, to an annualized growth of 6.4% in January, but remains well above the Fed’s target of just 2% per year. The next reading for the CPI is on March 14, Tuesday.

“Although inflation has been moderating in recent months, the process of getting inflation back down to 2% has a long way to go and is likely to be bumpy,” Fed Chair Jerome Powell said in testimony before the U.S. Congress this week. “Recent economic data, particularly inflationary pressures, have been stronger than expected.”

To clamp down on runaway price growth, the Fed added 450 basis points to interest rates since March last year via eight hikes. Prior to that, rates stood at nearly zero after the global outbreak of the coronavirus in 2020.

The Fed’s first post-COVID hike was a 25-basis point increase in March last year. It then moved up with a 50-basis-point increase in May. After that, it executed four back-to-back jumbo-sized hikes of 75 basis points from June through November. Since then, it has returned to a more modest 50-basis-point increase in December and a 25-basis-point hike in February.

Investing.com’s Fed rate monitor tool — an indicator of money market expectations for upcoming rate decisions — has assigned a 58% chance of a 25 basis point hike at the central bank’s March 22 meeting.