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Gold prices gain as jobs report comes in well below yesterday’s ADP report

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What a disparity in the two jobs reports released this week. Yesterday ADP released its private sector payrolls for June which came in more than twice the estimate of economists polled by the Wall Street Journal. Economists had forecast that the report would reveal that 220,000 jobs were added to private sector payrolls last month and the actual numbers showed that 497,000 jobs were added.

Today the Bureau of Labor Statistics (BLS) released the nonfarm payrolls report for last month. Economists polled by the Wall Street Journal had forecast that the report would show an increase of 240,000 jobs were added. However, the actual numbers came in below that at 209,000 jobs were added in June, the smallest increase since 2020.

The softer employment numbers most likely will not be enough to change the resolve of the Federal Reserve as they consider raising rates at the next FOMC meeting. In addition, the rapid rise in wages adds to inflationary pressures. The lower numbers did not change market sentiment as to whether or not the Federal Reserve would implement a rate hike of ¼% at the end of the month.

In light of that, gold traded significantly higher. As of 5:40 PM EDT, gold futures basis the most active August contract is fixed at $1930.50, up $15.10 or 0.79%. On the surface, this might appear as though traders actively bid the precious yellow metal higher which is not precisely accurate. The dollar had a strong decline losing 0.93% taking the index to 101.91.

Because gold is paired against the dollar traders took gold fractionally lower and dollar weakness overcompensated being responsible for over 100% of today’s gains in gold futures. Spot gold is currently fixed at $1924.40 after factoring in today’s gain of $13.60. However, on closer inspection dollar weakness added $16.05 and normal trading resulted in a price decline of $2.45. This is according to the Kitco Gold Index (KGX). It seems that the dollar was overly sensitive to the declining yield of 10-year U.S. Treasuries. Today yields declined to 3.707%, down from the overnight session high of 4.017%.

Today’s jobs report did not have any strong impact on the probability that the Fed will raise rates at the FOMC meeting which will take place on July 26. According to the CME’s FedWatch tool, there is a 92.4% probability that the Fed will raise rates by ¼%. The probability of a rate hike yesterday was 91.8%, and 86.8% a week ago.

Wishing you as always good trading,

Gary S. Wagner - Executive Producer