Gold futures bounced from a three-week low on Friday after data showed U.S. jobs growth was slower than predicted in December as the Federal Reserve signaled faster rate hikes, which sent bullion on track for a weekly decline. In other words, daily up, weekly down. This suggests short-term gains will likely be capped by the bullish longer-term outlook for interest rates
The rebound in gold prices could also be a sign that investors will continue to be driven by rising inflation data until the Fed rate hikes start to have a meaningful effect on rising producer and consumer prices.
Non-Farm Payrolls Report Recap
The U.S. Labor Department said Non-Farm Payrolls rose by 199,000 last month, well short of the 400,000 estimate. But analysts noted underlying data in the report appeared sturdier, with the unemployment rate falling to 3.9% against expectations of 4.1% while earnings rose by 0.6%, indicating tightness in the labor market.
Job gains last month were led by the leisure and hospitality sector, which added 53,000 positions. Professional and business services payrolls rose by 43,000 jobs. Manufacturing added 26,000 jobs, while construction employment rose 22,000.
There were also gains in transportation and warehousing as well as wholesale trade and mining. Government employment fell by 12,000 jobs. Retail payrolls dropped as did those for utilities.
Essentially, all of the key areas of the economy showed growth, which is good news. Furthermore, although the report missed on the top side, the components of the report performed very well.
Treasury Yields Rise
U.S. Treasury yields rose as high as 1.8% on Friday following the release of December’s non-farm payrolls report.
The yield on the benchmark 10-year Treasury note finished at 1.766%. The yield on the 30-year Treasury bond rose to 2.1172%.
Yields have been rising since Wednesday, as investors digested the Federal Reserve’s latest meeting minutes, in which officials indicated that the central bank was ready to more aggressively pullback its policy support of the economy.
We could be looking at a short-term rangebound trade until the release of the U.S. consumer inflation numbers on Wednesday. Traders are looking for a 0.4% in December. This would push the annual rate higher. Gold prices could spike on the initial news then weaken as investors begin preparing for the earlier-than-expected Fed rate hike.