Gold Traders Swap Rate Hike Fears for Inflation Worries

Gold futures edged higher on Friday after posting a choppy, two-sided trade. The moves were primarily driven by fear.

Fear that the Fed will raise interest rates faster than expected drove gold down early in the session after a surprisingly upbeat U.S. jobs report sent U.S. Treasury yields sharply higher while the U.S. Dollar firmed.

However, gold prices rebounded to close higher for the session on fear that the sharp rise in employment would trigger another strong surge in consumer inflation. The U.S. reports on Consumer Price Inflation (CPI) on Thursday.

On Friday, April Comex gold futures settled at $1807.80, up $3.70 or +0.21%. The SPDR Gold Shares ETF (GLD) finished at $168.86, up $0.26 or +0.15%.

US Jobs Report Headline Number Blows Away Forecast

The Labor Department said Friday that the economy added 476,000 jobs in January. Economists surveyed by Dow Jones expected an addition of just 150,000 jobs, with some Wall Street pros projecting net job losses for the month due to the omicron variant surge.

Data from December was revised higher to show 510,000 jobs created instead of the previously reported 199,000.

Average hourly earnings, a measure of wage inflation and a closely-watched measure, also rose 0.7% last month, and 5.7% on a year-on-year basis.

Treasury Yields Jump after Larger-than-Expected Jobs Gain; Dollar Gains

Treasury yields rose on Friday as investors reacted to a surprisingly strong January job report.

The yield on the benchmark 10-year Treasury note rose by 9 basis points to 1.918%. Earlier in the day, it hit its highest level since December 2019. The yield on the 30-year Treasury bond climbed 7 basis points to reach 2.223%.

The jump in U.S. Treasury yields made the U.S. Dollar a more attractive investment, driving it from a two-week low reached early in the session on Friday.

Short-Term Outlook

While rate hike fears took gold down, concerns over higher inflation data pushed it higher.

After January’s surprisingly strong jobs report, focus swings to consumer inflation in the week ahead and what it could mean for the Federal Reserve’s plan to raise interest rates. The consumer price index will be released on Thursday.

The reaction to the jobs report was swift with traders in the futures market pricing in six interest rate hikes for this year, while many economists predict four or five.

The headline inflation number is expected to rise by 0.4%, down from 0.5% in December. But that would still be a hot 7.2% year-over-year reading.