Gold prices ended higher on Friday to log a third straight weekly gain, after the U.S. December employment report showed the smallest rise in new jobs in two years.
The data raised some expectations that the Federal Reserve may not be quite as aggressive in its efforts to tame inflation.
Price action
- Gold for February delivery GC00,
+1.83% GCG23,+1.83% rose $29.10, or 1.6%, to settle at $1,869.70 per ounce on Comex, according to FactSet data. Prices based on the most-active contract ended 2.4% higher for the week, according to Dow Jones Market Data. - Silver for March delivery SI00,
+2.61% SIH23,+2.61% gained 56 cents, or 2.4%, to $23.982 per ounce, though finished 0.2% lower for the week. - Palladium for March delivery PLJ23,
+3.43% gained $74, or 4.3%, to 1,806.70 per ounce, up 0.5% for the week, while platinum for April PAH23,+4.72% added $34.70, or 3.2%, to $1,104.30 per ounce for a weekly rise of 2%. - March copper HGH23,
+2.66% settled at $3.911 a pound, up 9 cents, or 2.4%, for the session for a weekly rise of 2.6%.
Market drivers
Gold prices climbed after government data showed the U.S. generated 223,000 new jobs in December, the smallest increase in two years.
The employment data , which was “arguably the most important” data point of the month was “upbeat, but yet not too strong,” said Jim Wyckoff, senior analyst at Kitco.com, in a daily report.
Economists polled by The Wall Street Journal had forecast a smaller increase in new jobs of 200,000.
“Gold and the general marketplace appear to be breathing a sigh of relief” that the jobs report was “not stronger than expected, which may have prompted the Federal Reserve to become even more aggressive on its monetary-policy-tightening mission,” said Wyckoff.
Read: Why gold prices may be headed for record highs this year
Data Friday also showed the unemployment rate fell to 3.5% from 3.6%, while hourly pay rose by 0.3%.
“There is a silver lining with wage inflation,” as wagers “only increased” by 0.3%, or year over year by 4.6%. said Jeff Wright, chief investment officer at Wolfpack Capital. “Wage inflation is a key data point for the Fed and more impactful as wages are a sticky inflationary measure compared to other data points.”
So with gold, “this is a positive and there is hope the Fed will be more data dependent in 2023 to allow for the pace of interest rate increases to lessen,” Wright told MarketWatch, adding that odds of a 50 basis point rate hike, then possibly 25 basis points afterwards are increasing in the credit markets.
Still, Wright believes gold remains “range bound,” and he says he’s “not looking for gold to break much higher and think profit taking could occur if [gold] goes over $1,850.”
The ISM service-sector index reading, meanwhile, fell to 49.6% in December, a “huge miss and these series of negative data points are very supportive for gold,” said Wright.
Basically the theme going forward is: “bad data is good news for gold” and the U.S. equity market while good economic data is the inverse, and bad for gold and U.S. equity market, he said.
Gold had kicked off the year at its highest level since June as the outlook for the precious metal has brightened in recent weeks despite expectations for more Fed interest rate hikes.
However, economic data has shown that inflation has receded somewhat in recent months, while expectations for a recession have persisted despite a growing labor market that has continued to expand despite layoffs in the technology, finance and media spaces.
Gold’s recent gains are especially notable given commentary from senior Fed officials that the Fed funds rate may remain north of 5% for some time.
“Given this macroeconomic backdrop it seems remarkable that gold is still looking up and able to build on its impressive price recovery since the start of November,” said Rupert Rowling, a market analyst at Kinesis Metals.
Lower Treasury yields and a softer dollar have also been a factor, analysts said. The greenback moved down in Friday dealings, with the ICE U.S. Dollar Index DXY,
