The recently released U.S. jobs report revealed that the American economy added an additional 311,000 jobs in February. This was a significant reduction from the 504,000 positions created in January and represented an unemployment rate increase from 3.4% to 3.6%.
There was a 0.2% month-over-month increase in average hourly earnings, less than the key 0.3% threshold, and there was a 4.6% increase compared to the expected 4.7%.
PNC Financial Services chief economist Gus Faucher noted that although the report was a relatively strong one, it indicated that the U.S. Federal Reserve would have to continue raising benchmark interest rates and that a recession could be imminent. Consequently, the report led to reduced expectations for inflation and an increased sell-off of the U.S. dollar, which then impacted the gold market.
Furthermore, traders reduced the probabilities of the Fed increasing benchmark interest rates by 50 basis points in late March from more than 60% to below 50%.
FXStreet senior analyst Dhwani Mehta noted that short-term interest rate futures in the United States went up in the wake of the February jobs report as traders began pricing in a shallower Fed rate hike path. Gold prices also spiked in the wake of the mixed U.S. jobs report, rising to trade as high as $1,842 after the report’s release. The spike in gold prices represented a temporary reversal of the downtrend in gold prices that began in February.
However, gold prices would have to peak over the $1,858 high seen on March 6, 2023, for the market to say that the downtrend has reversed. Although gold started the year performing strongly, prices began to fall as January drew to a close, going from $1,952 per ounce to $1,854.
Although traders were wondering if the February jobs report would extend the downtrend in gold prices, the report cause gold prices to spike instead.
The decline in gold’s price was partly caused by aggressive interest rate hikes by the Fed and other central banks across the world, which increased demand for the greenback and caused investors to shift their funds from gold, which doesn’t generate interest, to investment options such as treasury bonds.
Reduced gold demand from India, one of the largest consumers of gold globally, also resulted in reduced gold prices. Furthermore, a major gold dump by the Russian Finance Ministry in the wake of global sanctions that significantly hampered the Kremlin’s economy increased the supply of gold by a whopping 3.6 tons and caused prices to drop.
This recent gold spike is a welcome breath of fresh air to major extractors such as Royal Gold Inc. (NASDAQ: RGLD), which could use the extra earnings to boost their balance sheets.
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