Gold Dips On Hotter Than Expected Jobs Report

Gold dipped lower following a stronger-than-expected May U.S. employment report. The U.S. economy generated 272,000 new jobs in May, well above consensus estimates for 180,000 new jobs. Average hourly earnings rose 0.4% in May, also above the 0.3% consensus forecast.

Meanwhile, the overall May unemployment rate increased to 4.0% from 3.9% in April. That marked the highest level since January 2022.

Traders sold gold following the report as the strength in the labor market reduces chances that the Federal Reserve will cut interest rates this summer. The Fed’s “higher for longer” approach to interest rates could play out this year if inflation remains stubbornly above the central bank’s 2% target rate.

Indeed, a day before the May jobs report, markets had priced in a 70% chance of a Fed rate cut in September. However, those odds dropped to about 50% following the jobs report.

The longer Fed rate cuts are delayed, the more competition gold faces from interest bearing investments.

Digging deeper into the employment report, a notable trend is the jump in part-time jobs at the expense of full-time employment.

An increase in part-time employment is historically a leading indicator of broader job market weakness, as employers are less confident about taking on new full-time employees. Full-time employment in the May household survey fell 1,523,000 from its peak in June 2023. Meanwhile, part-time employment has climbed to 1,756,000 since that time.

Here’s a snapshot of the new job growth by major sectors:

• Private employment rose 229,000.
• Government employment rose 43,000, mostly at the local government level.
• 21,000 new construction jobs were created.
• 8,000 new manufacturing jobs were created.
• 84,000 new healthcare and social assistance jobs were created.
• 42,000 new leisure and hospitality jobs were created.
• 13,000 new retail jobs were created.
• 11,000 new transportation and warehousing jobs were created.

The long-term uptrend in gold remains intact and throughout 2024, investors have consistently entered the market to accumulate gold on price dips like we are seeing now.

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