Gold down 3%, way off $2,000 target after blockbuster U.S. jobs report

By Barani Krishnan

Investing.com - Gold tumbled almost 3% on Friday after a blockbuster U.S. jobs report for January triggered profit-taking on the precious metal’s long-running rally, putting it way off the $2,000-an-ounce target eyed by bulls in the space.

Gold for April delivery on New York’s Comex settled at $1,868.30 an ounce, down $53.90, or 2.8%. It hit a four-week low of $1,874.55 during the session.

It was the first time since Jan. 12 that gold’s $1,900 support on Comex had crumbled.

The spot price of gold, more closely followed than futures by some traders, was at $1,865.13, down $47.44, or 2.5%.

Gold’s plunge came after the U.S. Labor Department reported a NFP, or non-farm payrolls, growth for January that was almost three times above forecast, throwing a fresh challenge to the Federal Reserve’s hopes of seeing a cooling of the labor market and wages to get inflation to its target. Some 517,000 jobs were added last month versus a forecast 188,000 and against December’s 223,000.

"The monstrous NFP numbers have wreaked havoc on gold bulls already facing heat over the past two days from the Fed's outlook on the economy," Sunil Kumar Dixit, chief technical strategist at SKCharting.com, said noting the spot price's $85 tumble from highs of almost $1,960 over 48 hours. Comex futures had climbed to above $1,975 before the rout.

Dixit predicted further losses as both the Dollar Index and yields on the U.S. 10-year Treasury note surge on the back of the newfound strength in the labor market, which could make the Fed rethink further consolidating its rate hikes for this year. The central bank went from a 50-basis point rate hike in December to 25-basis points in February.

"Gold bears now are confident of taking control of the market and will try to push deeper into $1,866-$1,862 as their next station," said Dixit. "On the flip side, any bounce towards $1,900-$1,920 will be relief for some of longs."

While policymakers the world over typically celebrate seeing good jobs numbers, the Fed is in a different predicament. The central bank wishes to see an easing of 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 is its biggest two headaches now in fighting inflation.

Prior to January, the Fed saw what it thought was a consolidation of the labor market as monthly jobs creation went from 263,000 to 223,000 over a four-month stretch between August and December.

As though sensing a tougher challenge for this year, Fed Chair Jerome Powell told a news conference on Wednesday that while the pace of job gains had slowed late last year, "the labor market continues to be out of balance." He said this after announcing a 25-basis point rate hike for February, the central bank's smallest rate increase in a year.

The Fed has increased rates by 450 basis points in a monetary tightening cycle that began in March 2022, two years after the coronavirus outbreak, which led to trillions of dollars in relief spending that pumped up the economy and triggered runaway inflation.

Inflation, as measured by the CPI, or Consumer Price Index, hit four-decade highs in June when it expanded at 9.1% yearly. In December, the CPI grew at 6.5% per annum, its slowest since October 2021. Yet, that was more than three times the Fed's target.

The Fed has a particularly delicate job in trying to balance jobs with inflation. Both are top priorities for the central bank, which is mandated with ensuring "maximum employment" through a jobless rate of 4% or below and keeping inflation manageable. It did alright on the first and splendidly with the second for over a decade, when prices expanded at less than its target of 2% per annum.

Since the COVID-19 outbreak, the situation has reversed. The central bank has outperformed its jobs mandate as the labor market grew by leaps and bounds since the pandemic. But it has done miserably in fighting inflation.