Price of Gold Fundamental Daily Forecast – Weak Headline Number Not Enough to Derail Fed’s Tapering Plans

Gold futures are edging higher late in the session on Friday after another successful test of a major technical support zone at $1781.00 to $1757.10. If traders can build on this then we could see a short-term rally into $1822.10.

At 19:39 GMT, February Comex gold futures are trading $1784.00, up $21.30 or +1.21%. SPDR Gold Shares ETF (GLD) is trading $166.84, up $1.60 or +0.97%.

The catalysts behind today’s bullish price action are worries over the potential impact a weak U.S. jobs report would have on the Federal Reserve’s monetary policy amid uncertainty sparked by the Omicron coronavirus variant.

Despite Weak Jobs Report, US Labor Market Tightening; Unemployment Rate Close to Pre-Pandemic Levels

U.S. employment growth slowed considerably in November amid job losses at retailers and in local government education, but the unemployment rate plunged to a 21-month low of 4.2%, suggesting the labor market was rapidly tightening.

The four-tenths-of-a-percentage-point drop in the jobless rate from October reported by the Labor Department in its closely watched employment report on Friday occurred even as 594,000 people entered the labor force, the most in 13 months. Workers put in more hours, boosting aggregate wages, which should help to underpin consumer spending.

The survey of businesses showed nonfarm payrolls increased by 210,000 jobs, the fewest since last December. But the economy created 82,000 more jobs than initially reported in September and October, a sign of strength. That left employment 3.9 million jobs below the peak in February 2020. Average Hourly Earnings came in lower than expected at 0.3%. Traders were looking for an increase of 0.4%.

Short-Term Outlook

Despite Friday’s recovery rally, traders shouldn’t read too much into the move. It’s most likely a knee-jerk reaction to today’s labor-market headline data. Economists are noting that the economy is very close to maximum employment, making an early interest rate increase from the Federal Reserve possible.

Furthermore, the lower-than-expected headline number is not enough to derail the Fed’s plans to speed up tapering and to raise interest rates. Earlier in the week, Fed Chair Jerome Powell told lawmakers that the U.S. central bank should consider speeding up the winding down of its massive bond purchases at its December 14-15 policy meeting.

“Don’t be fooled by the measly payrolls jobs gain this month because the economy’s engines are actually in overdrive as shown by the plunge in joblessness,” said Christopher Rupkey, chief economist at FWDBONDS in New York.