Gold Given Glimmer of Hope as Jobs Data Dim Fed Rate Outlook

  • U.S. wages stagnate, jobless rate was unchanged in September
  • Report casts doubts on outlook for Fed interest rate increase

Gold investors are finding some glimmer of hope in the dimming outlook for the U.S. jobs market.

Bullion gained for the first time in six sessions as U.S. payrolls rose less than expected in September and wages stagnated, signaling that the global slowdown and financial-market turmoil is rippling through the U.S. economy. The government figures on Friday weaken the case for the Federal Reserve to raise U.S. interest rates this year for the first time since 2006.

Gold futures posted five straight quarterly declines, the longest slump since 1997, as the outlook for tighter monetary policy prompted investors to favor assets with better yield prospects. The employment data underscore the view of Fed policy makers who kept rates unchanged in September, citing international risks that threaten to dent growth and depress inflation. Higher rates dim the appeal of the metal because it doesn’t pay interest.

“The jobs report is causing people to reassess the long-term outlook for U.S. unemployment,” Phil Streible, a senior market strategist at RJO Futures in Chicago, said in a telephone interview. “That may result in the Fed not raising rates beyond the anticipated one time this year. They may even question whether the Fed would even raise rates this year.”

Gold futures for December delivery rose 2.1 percent to settle at $1,136.60 an ounce at 1:41 p.m. on the Comex in New York, the biggest increase since Aug. 20. Prices fell 3.5 percent in the previous five sessions as concern mounted that a strengthening U.S. economy would spur the Fed to tighten monetary policy this year.

Options Trading

Investors couldn’t seem to dump wagers on price declines fast enough. The five most-traded options Friday were puts, which gives owners the right to sell at a certain price, that suffered declines of at least 40 percent. The most-traded option was a put for December futures at $1,000.

Barrick Gold Corp., the world’s biggest producer of the metal, rose the most in more than a week, gaining 4.5 percent to C$8.56 in Toronto. Yamana Gold Inc. jumped 6.5 percent to C$2.29, and the 30-member Philadelphia Stock Exchange God and Silver Index advanced 6.2 percent.

The addition of 142,000 jobs in the U.S. followed a revised gain the prior month that was lower than previously estimated, a government report showed Friday. The median forecast in a Bloomberg survey of economists called for a 201,000 advance. The jobless rate held at 5.1 percent.

On Oct. 1, investors holdings in exchanged-traded funds backed by gold climbed 1.9 metric tons to 1,532.06 tons, the most since July 30.

Fed Funds

Fed funds futures show a 33 percent chance the central bank will increase its benchmark rate in December, down from 43 percent on Thursday.

In the payrolls report, “the September number was lower and revisions to the prior month weren’t even there,” Alfonso Esparza, a senior currency analyst at OANDA in Toronto, said in a telephone interview. “It gives the yellow metal a bit of a breather and lets it go higher. Now it seems less likely they’ll make a move in 2015.”

Other metals got a boost from the prospect of interest rates staying lower. On the Comex, copper futures for December delivery increased 0.9 percent to close at $2.3255 a pound, after earlier falling as much as 1.4 percent. Silver futures gained the most since December on the Comex, while platinum and palladium advanced on the New York Mercantile Exchange.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE