Gold Bugs Ignite, Subdued Treasury Yields In Play

Despite promising jobs data, the precious metal is benefitting from a labor participation rate below 62%; an overheated labor market would be about 1% higher.

“There is no doubt” the U.S. labor market is tight, Kansas City Fed President Esther George said on Friday. She added that she will be watching closely how wage pressures and inflation expectations manifest themselves as she gauges the economy’s progress towards full employment.

After the strong jobs’ reports, the 10-year Treasury yield dropped below 1.46 percent, lowering the opportunity cost of holding gold.

The Fed’s unhurried approach to raising interest rates and subdued Treasury yields seem to be supporting gold bulls.

Although the labor market report was strong, it won’t change what Federal Reserve Chair Jerome Powell said earlier this week, that inflation would be “transitory” and not call for fast interest rate rises.

In a subsequent statement on Friday, the European Central Bank policymakers stated that inflation would likely ease next year, suggesting market expectations of an October 2022 interest rate hike will not be met.

On Monday, the dollar index was stable but retreated 0.4% from its more than the one-year peak hit on Friday, which made bullion more appealing to buyers holding other currencies by lowering its cost.

There was a $1 trillion bill passed by the U.S. Congress for roads, bridges, and airports.

Since almost zero interest rates have reduced the opportunity cost of holding gold, the price of gold has surged over the last two years, as easy monetary policy spurred economic growth during the Covid-19 pandemic.