Gold tumbles but clings to $2,000 as U.S. jobs report suggests no rate pause

Investing.com — Did gold bulls’ bubble just burst?

It appears so after the U.S. Labor Department announced another for April that presumably had the inflation fighters at the Federal Reserve shaking their heads ruefully.

And the gold market responded accordingly to concerns that the Fed might not be done after all with its in June, with the spot price of bullion tumbling from the previous session’s record high of above $2,080 to under $2,000 at one point.

on New York’s Comex settled at $2,024.80 an ounce, down $30.90, or 1.5%, on the day, after a session low at $2,007.10. On Thursday, Comex gold for June hit an all-time high of $2,082.80 an ounce.

The , which reflects physical trades in bullion and is more closely followed than futures by some traders, was at $2,015.69 by 12:40 ET (16:40 GMT), down $34.51, or 1.7%. Earlier in the session, it broke below the $2,000 support, touching an intraday low of $1,999.66. On Thursday, spot gold hit a record high of $2,080.72.

Economists tracked by Investing.com had expected just 180,000 new non-farm payrolls for last month. The Labor Department reported 253,0000 instead, or 40% more. But in a twist, the department also revised down the 263,000 non-farm payrolls it had previously reported for March to just 165,000 in Friday’s report. The downward revision of 37% effectively meant the net increase in new jobs was just about 2%

However, the headline jobs number was what mattered to traders. And that told everyone that the Fed would likely have misgivings about pausing rate hikes in June, especially when Chair Jerome Powell had taken pains to point out that the central bank’s policy decisions going forth would be certainly data-driven.

The labor market has been the juggernaut of U.S. economic recovery from the COVID-19 breakout, with hundreds of thousands of jobs being added without fail since June 2020 to make up for the initial loss of 20 million jobs to the pandemic. Average monthly wages have also grown with barely a stop since May 2021. The Fed has identified robust job and wages growth as two of the key drivers of inflation.

Inflation, as measured by the , hit 40-year highs in June 2022, expanding at an annual rate of 9.1%. Since then, it has slowed, growing at just 5% per annum in March, for its slowest expansion since October 2021. The Fed’s favorite price indicator, the , meanwhile, grew by just 4.2% in March.

Even so, those numbers were more than twice the Fed’s appetite for inflation, which stands at just 2% per annum. The central bank has raised rates by 10 times since the end of the coronavirus pandemic in March 2022, adding a total of 5% to the previous 0.25%.

Aside from inflation, markets are also nervous about this week’s resurfacing of a U.S. banking crisis that broke in March. Adding to that were concerns about a potential US debt default, the first ever, and more weak readings on factory orders and durable goods.

“After finally hitting record high territory, gold is under pressure after a hot NFP report pushed back Fed rate cut bets,” Ed Moya, analyst at online trading platform OANDA, said, referring to April’s non-farm payrolls. “If banking worries continue to ease and the economy remains resilient, some policymakers may want to resume tightening.”

Notwithstanding that, gold “still has a good chance to get back in a record setting mood”, said Moya, pointing out that banking worries weren’t about to go away anytime soon due to how exposed the regional banks were to commercial mortgages — and the yellow metal’s standing as a safe-haven against such concerns.

“Regulators are scrambling and don’t have a clear plan to address the regional-banking crisis,” Moya said, adding that requiring big banks to provide money to refill the deposit insurance fund hole left by failed smaller banks was “just another band-aid solution”.

Technically as well, gold was poised for a rebound after Friday’s tumble, said Sunil Kumar Dixit, chief technical strategist at SKCharting.com.“A potentially bearish ‘Grave Stone Doji’ triggered a healthy pull back for spot gold towards support areas,” said Dixit. “Current levels can attract buyers back for a resumption of the uptrend, targeting a retest of the $2,048 – $2,060 initially, and later $2,076.”