By Barani Krishnan
Investing.com -- Gold began April trading with a fairly large slide on the week as the U.S. unemployment rate fell despite an underwhelming monthly addition in jobs that suggested the economy might not fare too badly — reducing the need for investors to rely on safe havens.
The front-month gold futures contract on New York’s Comex settled down $30.10, or 1.5%, at $1,919.20 an ounce. For the week, it fell 1.8%, its second biggest weekly decline in three that contrasted with its first quarter gain of 6.6%.
Gold typically serves as a hedge against economic and political troubles. In March, Comex’s front-month contract got to as high as $2,070 — just $42 from rewriting below the August 2020 record high of $2,121 — amid turbocharged U.S. inflation and a bubbling of geopolitical tensions right after Russia’s invasion of Ukraine.
On Friday though, gold fell as the U.S. jobless rate improved to 3.6% in March from 3.8% in February despite jobs growth for the month coming in at 431,000 — some 12% below economists’ expectations.
A jobless rate of 4% and below is defined by the Federal Reserve as “full employment.” The United States has technically had full employment since December when the jobless rate fell to 3.9%.
“A strong employment report has gold on the ropes even as the Treasury yield curve inverts again,” Ed Moya, analyst at online trading platform OANDA, said, as the yield on the U.S. 10-year Treasury note jumped for the first time in six days.
“The shorter-end of the (yield) curve is steepening and while recession risks for down the road are growing, the economy is still looking very good right now,” Moya said. “Gold seems like it could still trade between the $1,900 and $1,950 range, but the risks of bearish momentum winning out are growing.
The monthly growth or decline in jobs is being closely watched by the Fed to decide on the rate hikes that will be needed to contain inflation expanding faster than an economy growing at its quickest pace in four decades.
After contracting 3.5% in 2020 from disruptions forced by the COVID-19, the US economy expanded by 5.7% in 2021, growing at its fastest pace since 1982.
But inflation grew even more. The Personal Consumption Expenditure Index, a US inflation indicator closely followed by the Fed, rose by 5.8% in the year to December and 6.4% in the 12 months to February, Both readings also indicated the fastest growth since 1982. The Fed’s own tolerance for inflation is a mere 2% per year.
The central bank slashed rates to nearly zero after the coronavirus outbreak in March 2020 and kept them unchanged for two years to enable economic recovery. Last month, for the first time since the pandemic, the Fed’s policy-making Federal Open Market Committee, or FOMC, raised rates by 25 basis points, or a quarter percentage point.
Now, unyielding inflation is prodding FOMC officials to consider a 50-basis point, or half percentage point, increase at the committee’s next two meetings in May and June. The central bank has stated that it could raise rates by a maximum seven times this year and continue its monetary tightening into 2023 to bring inflation back to its 2%-per year target.
Fed Chairman Jerome Powell said last month the labor market was “extremely tight” with robust demand and subdued supply. He also noted that more than a million positions were filled within the first two months of the year.
The government’s monthly Job Openings And Labor Turnover Summary report earlier this week showed that job openings hovered near record highs in February as vacancies continued to outpace hires in an unemployment market that remained overwhelmingly in favor of workers.