Gold retraced some intraday gains on Friday as the dollar strengthened following a surprisingly strong U.S. jobs report that boosted expectations for further Federal Reserve rate hikes. Still, bullion finished the week with notable gains, supported by demand for safe assets amid heavy selling in equity markets.
At 16:43 ET (21:43 GMT), spot gold was down 0.6% at $4,065.44 per ounce, while December gold futures slipped 0.9% to $4,074.75 per ounce. For the week, spot gold rose 4.9% and futures climbed 4.5%.
Market attention on Friday centered on the U.S. economic release for October employment. The U.S. Bureau of Labor Statistics reported that nonfarm payrolls increased by 165,000 last month, well above the consensus estimate of 65,000. The bureau also revised August and September payrolls higher by a combined 84,000. The unemployment rate fell to 4.1% from 4.2% in September.
That strong display from the labor market, at a time when inflation remains above the Fed’s long-term 2% objective, suggests to market participants that the central bank has greater scope to raise rates further. Policymakers had already tightened policy by 25 basis points in September, signaling that persistent inflation could prompt additional hikes.
Following the jobs release, the CME FedWatch tool showed the probability of a 25-basis-point Federal Open Market Committee increase on December 9 climbing to nearly 79%, up from almost 73% prior to the data. Higher interest-rate expectations typically weigh on non-yielding assets such as gold and tend to strengthen the dollar, which can make bullion more expensive for buyers using other currencies.
"Friday’s stronger-than-expected jobs report is a relief, and suggests that the labor market is still able to produce jobs even in this elevated interest rate environment. The report by itself is unlikely to sway the Federal Reserve’s rate calculus as of now, and we would still expect a December rate hike," said Clark Bellin, president and chief investment officer at Bellwether Wealth.
Energy markets added another layer to this week’s moves in precious metals. Oil prices were volatile on Friday but were set for a sharp weekly decline. Some market participants point to a correlation between crude and gold driven by the impact that an energy-price shock can have on expectations for interest rates.
Notably, hopes that Democrats might press Republican President Donald Trump to swiftly end the Iran war reduced near-term oil risk premia. That prospect, along with other factors, has helped push crude prices lower this week. The drop in energy costs can ease concerns about inflationary pressure from oil, which in turn can influence the outlook for central bank tightening.
Traders and investors are watching how these cross-currents - a resilient labor market, rising rate-hike probabilities, a firmer dollar, and falling crude prices - interact to shape demand for bullion going forward. For the week, the decline in crude was a supporting factor behind gold’s advance, even as the jobs report and its implications for policy constrained gains on the day.
Key market metrics at the close included spot gold at $4,065.44/oz and gold futures at $4,074.75/oz, with weekly moves of +4.9% and +4.5% respectively. Employment data showed payrolls up 165,000 in October and the unemployment rate down to 4.1%, while revised gains for August and September totaled 84,000. The CME FedWatch probability of a December 9 quarter-point hike rose to nearly 79% after the report.