Gold's Surge to Three-Month High Choked Off in Fed-Fears Redux

  • Report shows drop in U.S. unemployment, gain in earnings
  • Fed-fund futures show increase in December rate-rise odds

Gold ETFs Growing Rapidly This Year

Just when it finally looked safe to jump back into gold, investors are once again facing the specter of rising U.S. interest rates.  

A government report Friday showed the U.S. jobless rate fell in January to the lowest since 2008, while hourly earnings rose more than estimated, bolstering the case for the Federal Reserve to tighten monetary policy further. The dollar advanced, curbing gold’s appeal as an alternative asset. The metal receded from a three-month high touched before the jobs report.

Bullion has been the best-performing metal this year in the Bloomberg Commodity Index as a selloff in global equities and signs of uneven U.S. economic growth fueled bets that the Fed would hold off on raising rates again. Higher rates reduce the appeal of precious metals, which don’t pay interest. Fed-fund futures show the odds of a rate increase in December have climbed to 53 percent, from 46 percent on Thursday.

“Investors are going to focus on the average hourly wages because that’s what the Fed was looking for -- the uptick in wages,” Chris Gaffney, president of EverBank World Markets in St. Louis, said in a telephone interview. “While March still probably isn’t on the table, I think that with this report there’s a possibility that interest rates will go higher in 2016, and that’s why you’re seeing the metals sell off a bit here.”

Gold futures for April delivery fell as much as 1 percent to $1,145.50 an ounce, before settling little changed at $1,157.70 at 1:42 p.m. on the Comex in New York. Before the jobs report, prices climbed to $1,164, the highest since Oct. 28. The metal is up 9.2 percent this year, after posting three straight annual declines.

Fed Bank of Dallas President Robert Kaplan said Thursday that it’s premature to judge what policy makers will decide about rates at their meeting in March, as they gauge the implications of a dimmer global outlook for U.S. jobs and inflation.

“The market has pre-positioned for something a little bit more negative than we got” in the jobs data, Bart Melek, the head of commodity strategy at TD Securities in Toronto, said in a telephone interview. “It’s not as weak as some gold traders were hoping for. A stronger dollar certainly is not helping gold.”

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