Gold Jumps to 10-Week Peak on Lackluster U.S. Nonfarm Payroll Report

financial markets

Gold prices rose to almost 2-½-month high on Monday after the release of disappointing U.S. jobs growth for August. The weaker-than-expected employment rate raised hopes for a delay on Federal Reserve tapering. It also pushed the U.S. dollar down to its level since August 4 and made the yellow metal more attractive for investors using rival currencies.

Spot gold is currently trading at $1,826.31 per ounce as of 0801 GMT.

The Labor Department reported that U.S. nonfarm payrolls increased by only 235,000 jobs in August. It is the lowest level in seven months and way below economists’ forecast of 728,000. The weak jobs growth is due to the resurgence in Delta variant infections, which affected hiring in the leisure and hospitality sector. But analysts pointed out the decline in the unemployment rate and the increase in average hourly earnings. They suggested that data highlights the underlying strength of the U.S. economy.

The hiring slowdown means the Fed would have to push back its plan for withdrawing stimulus measures. Fed Chair Jerome Powell said last week that labor market growth is one of the prerequisites for tapering its asset purchasing program.

IG Market analyst Kyle Rodda noted that the weak dollar and the expected delay in Fed tapering supported the yellow metal. He sees immediate resistance at $1,830 per ounce.

OCBC Bank economist Howie Lee agreed and suggested that gold is likely to continue its upward momentum. He expects the bullion to reach $1,900 in the near term because of the continued decline in the dollar.

In the European Union, analysts expect the European Central Bank to announce a reduction in its emergency bond purchases in December. Business activity in the eurozone remained strong in August despite supply chain issues and Delta variant woes. An IHS Markit survey indicated that the region’s economy could return to pre-pandemic levels by the year-end.

In physical trading, higher domestic prices dampened gold demand in major Asian hubs. In India, gold futures traded around 47,100 rupees per 10 grams. But traders are hoping for more buyers in the upcoming festival season. Gold premiums drop slightly in India, China, Hong Kong, Singapore and Japan.

In a related development, the U.S. Commodity Futures Trading Commission reported that market speculators raised their bullish stance in COMEX gold contracts for the week that ended on August 31.