Gold prices rallied sharply on Thursday after weaker-than-expected U.S. employment data reduced expectations for further Federal Reserve interest-rate hikes.
Investors viewed the softer labor market figures as a possible reason for policymakers to keep borrowing costs unchanged for longer.
Spot Gold Jumps More Than 2%
By 09:33 ET, or 13:33 GMT, spot gold had surged 2.4% to $4,126.75 per ounce.
U.S. gold futures also advanced, rising 1.45% to $4,142.42 per ounce.
The strong gains came as traders adjusted their expectations for the direction of Federal Reserve policy.
Fed Rate-Hike Odds Decline
According to the CME FedWatch tool, markets were pricing in an approximately 51% probability of an interest-rate hike by September.
That was down from around 66% before the release of the employment report.
Lower expectations for higher interest rates tend to support gold because the precious metal does not generate interest or dividends.
U.S. Payroll Growth Misses Forecasts
Data from the Bureau of Labor Statistics showed that the U.S. economy added only 57,000 nonfarm payrolls in June.
The result was far below the consensus forecast of 114,000 new jobs.
May’s employment increase was also revised lower to 129,000.
The report followed separate data released on Wednesday showing that private-sector employment had also increased by less than expected.
Recent Jobs Data Had Remained Strong
Before the June report, nonfarm payroll growth had exceeded market forecasts for three consecutive months.
That strength had pushed the three-month average increase in payrolls to a two-year high of 188,000.
Morgan Stanley analysts had previously described the labor market as solid and said employment conditions appeared to have recovered from the weaker period seen last year.
However, the latest figures raised fresh questions about whether that momentum can continue.
Inflation Risks Complicate the Fed Outlook
A resilient labor market would normally give the Federal Reserve more room to increase interest rates.
However, policymakers must also consider the risk that tighter policy could weaken employment and broader economic growth.
Inflation remains another key concern, particularly after energy prices increased following the start of the U.S.-Israeli military campaign against Iran in February.
Oil prices have since eased after the United States and Iran signed a framework peace agreement. Nevertheless, uncertainty remains over whether the earlier energy price surge will create longer-lasting inflation pressures.
Fed Expectations Had Turned More Hawkish
Deutsche Bank analysts said expectations for Federal Reserve policy had become more hawkish in recent weeks.
Before the latest jobs data, investors increasingly believed that the central bank could raise interest rates as early as September.
However, weaker private payroll figures and the disappointing nonfarm payrolls report reduced some of those expectations.
Federal Reserve Chair Kevin Warsh also suggested on Wednesday that U.S. inflation risks had eased, increasing speculation that policymakers may avoid an immediate rate hike.
Interest Rates Remain Crucial for Gold
The outlook for monetary policy is an important influence on gold prices.
When interest rates rise, interest-bearing assets such as government bonds can become more attractive than gold.
By contrast, stable or lower rate expectations reduce the opportunity cost of holding the non-yielding precious metal.
Weaker Dollar Provides Additional Support
The U.S. Dollar Index also moved lower following the employment report.
A weaker dollar generally supports gold because it makes the metal less expensive for buyers using other currencies.
However, the dollar remained well above the levels seen before the Middle East conflict as expectations for a relatively hawkish Federal Reserve continued to provide some support.
Neil Welsh, head of metals at Britannia Global Markets, said the stronger currency environment had encouraged investors to reconsider their positions following several volatile weeks.
