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07 Jul, Thursday
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Bull Trader USA

Metals Stocks: Gold ends higher after December jobs report, but logs sharpest weekly loss since Thanksgiving

Gold futures ended with a gain on Friday after a report on the U.S. labor market showed that the country created 199,000 new jobs in December, far short of estimates for more than twice that figure.

Prices, however, still suffered a loss for the week, their worst since Thanksgiving week.

The report, which some viewed as mixed because of some positive aspects embedded in the monthly update, may signal that labor shortages and the omicron variant of coronavirus that causes COVID-19 are still hamstringing the jobs market.

The headline number was a “big miss,” Jeff Wright, chief investment officer at Wolfpack Capital, told MarketWatch.

The 199,000 new jobs in December came in well below the 422,000 jobs forecast by economists polled by The Wall Street Journal. The jobless rate, meanwhile, slipped to 3.9% from 4.2%, while hourly pay jumped 19 cents, or 0.6%, to $30.31.

“The biggest concern for me is wage inflation,” said Wright.

“Looking at the sum of parts, if the Federal Reserve is most concerned about inflation then this report is problematic,” he said. “If the Fed is valuing higher levels of employment and getting labor participation rates back above 62.5%, then the report isn’t.” This is why the reaction in gold initially was “muted,” he said.

““Looking at the sum of parts, if the Federal Reserve is most concerned about inflation then this report is problematic.””

— Jeff Wright, Wolfpack Capital

The market knows the Fed taper is proceeding along with asset sales, together with quantitative tightening, but the “mixed signals have become a floor for gold recently,” said Wright.

Gold and other precious metals have been pressured by prospects of tighter monetary policy from the Fed and it is unclear what, if any impact, the Friday figures will have on the central bank, which next meets Jan. 25-26.

For now, gold appears to be trading in a range of $1,750 to $1,825 “until direction and leadership is established; predominantly from policy makers,” Wright said. “Their lack of leadership is rather glaring and gold isn’t sure where to go next.” 

February gold GCG22, +0.39%   GC00, +0.39% rose $8.20, or 0.5%, to settle at $1,797.40 an ounce, after a 2% drop — its steepest daily decline in over six weeks — left the most-active contract at the lowest level since Dec. 21 on Thursday.

For the week, most-active gold futures fell 1.7% for the sharpest weekly decline since Nov. 26, based on FactSet data.

The 10-year Treasury note TMUBMUSD10Y, 1.764% yields traded at 1.762% holding near the highest levels since late March of 2021. The steady climb in Treasury yields has dulled appetite for nonyielding precious metals.

Meanwhile, March silver SIH22, +0.83% tacked on 22 cents, or 1%, at $22.409 an ounce, for a weekly loss of 4%.

Over the week, strength in the U.S. dollar had pressured dollar-denominated prices of gold, but in Friday dealings, the ICE U.S. Dollar Index DXY, -0.62% fell to trade lower for the week.

Naeem Aslam, chief market analyst at AvaTrade, said that gold has been weighed down because “traders know that the Fed is serious about controlling inflation now and as a result they are adopting a hawkish monetary policy.”

Indeed, minutes from the Fed’s last meeting in 2021 indicated that policy makers may be more inclined to take a more aggressive tack in winding down the central bank’s $8.9 trillion balance sheet than the last time it reduced it, after it raises interest rates at least three times in 2022, market-based estimates project.

Even after the jobs data on Friday, traders “don’t see the Fed changing its monetary policy path,” said Aslam. “The expectations are still for three rate hikes this year and this is keeping the gold price in check.”

In other Comex metals trading, March copper HGH22, +1.14% climbed by 1.3% to $4.41 a pound, but ended 1.2% lower for the week.

April platinum PLJ22, -0.31% shed 0.4% to $956.50 an ounce, for a weekly loss of 1%, while March palladium PAH22, +2.67% settled at $1,921.60 an ounce, up nearly 2.6% Friday, for a weekly rise of about 0.5%.

Investors will look to next week’s inflation numbers and trends in the U.S. stock market to help guide the next move for gold prices, said Chintan Karnani, director of research at Insignia Consultants. U.S. consumer-price index data for December will be released on Wednesday.

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