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Stronger-than-expected U.S. jobs report results in volatile price swing in gold

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This morning the U.S. Bureau of Labor Statistics released the nonfarm payroll employment report for December at 8:30 AM ET. There was an immediate and strong knee-jerk reaction to this report’s release. 

The chart above is a standard 30-minute Japanese candlestick chart. The candle highlighted occurred at 8:30 AM and shows the increased volatility, a $20 price swing during the first 30 minutes after the report was released. Gold futures were trading at $2046 and within the first few minutes declined by $16 trading to today’s low of $2030. However, the price difference between the open and closing price during the first half hour was only one dollar. 

This would be followed by gold moving to the daily high at $2071.10 1 ½ hours later. The high achieved two hours after the report was released was unsustainable and over the next two hours, gold prices would give back $21.10 taking gold back to $2047.60, as of 4:52 PM ET gold futures basis and fixed at $2049.80.

The jobs report revealed that payrolls increased by 216,000 jobs in December. This was much higher than the initial estimate by economists of 170,000, and well above the 199,000 jobs added in November. This resulted in a sharp upside spike in the U.S. dollar as well as higher yields on U.S. treasuries.

This caused market participants to question their expectations regarding the Federal Reserve’s monetary policy and the timing of rate cuts this year. The economy in the United States continues to surprise market participants as well as economists. The strong jobs report today has changed the expectations of a rate cut in March which according to the CME’s FedWatch is now at about a 56% probability.

Yesterday’s release of last month’s FOMC meeting raised questions and concerns about the timing of rate cuts as the minutes revealed discussion about potential rate hikes if deemed necessary, along with other potential scenarios. In my opinion, this was an extreme overreaction considering that the minutes record all of the conversations which of course would include many possible scenarios. It was Chairman Powell’s speech made at the press conference at the last FOMC meeting, and the projections through the dot plot that are the blueprint that market participants should focus on.

A little less speculation as well as realistic optimism would go a long way to smooth the volatility created any time a new statement or report is released.

Editor's Nore: The Kitco interview was recorded on Wednesday, January 3rd. Please enjoy the interview.

Wishing you as always good trading,

Gary S. Wagner - Executive Producer