(Kitco News) - The gold market is attracting strong buying interest as the U.S. labor market loses momentum, with the economy creating fewer jobs than expected last month.
Even football couldn't save the labor market. Expectations were elevated heading into the early release of the nonfarm payrolls report, as economists had forecast a hiring boost ahead of the FIFA Men's World Cup.
U.S. nonfarm payrolls rose by 57,000 in June, according to the Bureau of Labor Statistics. The monthly figure significantly missed consensus forecasts, as economists had expected job gains of around 114,000.
At the same time, the unemployment rate continued to fall, dropping to 4.2% from May's reading of 4.3%. According to consensus estimates, economists had expected the rate to remain unchanged.
The gold market is trading at session highs, holding solid gains above $4,100 an ounce in its initial reaction to the disappointing labor market data. Spot gold last traded at $4,130.25 an ounce, up more than 2% on the day.
Gold is attracting renewed buying momentum as analysts expect the disappointing labor market data to begin shifting expectations around the Federal Reserve's tightening bias. Although inflation remains elevated, weakening labor market conditions could force the U.S. central bank to cut interest rates rather than raise them.
On Wednesday, at the ECB Forum on Central Banking, Federal Reserve Chair Kevin Warsh emphasized his commitment to focusing on price stability and bringing inflation back to the central bank's target. However, he also said that inflation risks had eased in recent weeks since taking over leadership of the Federal Reserve.
“This is good for metals because it puts less pressure on the Fed to hike rates. This is a sign that the job market is starting to cool down and the Fed may have to rethink hiking rates and not stimulate growth,” said Waleed Said, Technical Analyst at GivTrade.
Not only was the headline figure weaker than expected, but the report also included downward revisions to previous months' data. According to the update, 129,000 jobs were created in May, down from the initial estimate of 179,000. At the same time, April's employment figure was revised down by 31,000 to 148,000 from the previous estimate of 179,000.
Helping to ease inflation fears, wages increased in line with economists' forecasts. The report said average hourly earnings rose by 13 cents, or 0.3%, last month to $37.64.
However, Fawad Razaqzada, Market Analyst at FOREX.com, said that he does not expect the latest nonfarm payrolls data to have much impact on interest rate expectations.
“One month’s worth of data will never be enough. The Fed’s focus is on inflation, meaning the jobs data should be taken with a pinch of salt for any dollar bears out there,” he said.
