Gold Explodes Higher as jobs data put June rate hike in question

Gold has been rescued by U.S. payrolls. Again.

The metal headed for the biggest gain in 11 weeks after the U.S. added the fewest workers in almost six years, weakening the case for the Federal Reserve to raise interest rates. Before the jobs report Friday, a gauge of volatility in bullion fell to an almost four-month low, and the volume of U.S. futures this week was the least since the start of the year.

Bullion is coming off of its biggest monthly loss since November after signs of an improving U.S. economy spurred speculation that the Fed could tighten monetary policy as soon as this month. Higher rates curb bullion’s appeal against interest-bearing assets. Those bets retreated on Friday, with the odds of a June rate rise dropping to 4 percent, from 30 percent a week ago, according to Fed funds futures.

“It’s a pretty bad number,” Bob Haberkorn, a senior market strategist at RJO Futures in Chicago, said in a telephone interview, referring to the jobs report. “It takes the Fed rate increase pretty much off the table for June.”

Gold futures for August delivery jumped 2.4 percent to $1,242 an ounce at 9:42 a.m. on the Comex in New York. A close at that price would mark the biggest gain since March 17. Trading was 30 percent above the 100-day average for this time, according to data compiled by Bloomberg.

The addition of 38,000 workers, the fewest since September 2010, followed a 123,000 advance in April that was smaller than previously estimated, a Labor Department report showed Friday. The increase in May was less than the most pessimistic forecast in a Bloomberg survey. Last week, Fed Chair Janet Yellen suggested an increase in rates would be appropriate if economic growth picks up and the labor market continues to improve.

Gold initially rose last month after a disappointing payrolls report for April, before succumbing to a stronger dollar that trimmed demand for the metal as an alternative asset.

Luzi-Ann Javier
Bloomberg
June 3, 2016