- Gold prices climbed to their highest since early February on Friday following the April US jobs report.
- The gain of 266,000 jobs was well below expectations of 1 million jobs being added to payrolls.
- The data miss pushed Treasury yields lower, make gold more attractive to buy.
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Gold prices jumped Friday after the weak US monthly jobs report tamped down expectations of an interest-rate hike by the Federal Reserve, making the metal more attractive to investors looking to buy.
Gold jumped as much as 1.5% to $1,842.59, the highest price since February 10. The surge was set off after the Labor Department said nonfarm payrolls grew by 266,000 last month, well below the estimated gain of 1 million from a Bloomberg survey of economists. Payrolls increased for a fourth consecutive month but the print was the smallest since September.
The poor jobs showing sparked questions about the strength of the US economy’s recovery from the COVID-19 pandemic and supported the view that the Federal Reserve will keep holding its benchmark interest rates near zero.
“You’re going to see that the labor-market recovery is likely to take a lot longer than anyone was anticipating and that will push off some people’s rate-hike expectations a little bit and that’s positive for gold,” Ed Moya, senior market analyst at Oanda, told Insider.
Investors swooped into the bond market after the data, driving yields lower. The 10-year Treasury yield sank to an intraday low of 1.4710% from 1.5610% on Thursday. Lower rates can brighten the appeal of gold as the metal offers no yield.
“This jobs print was a miss of epic proportions and yields reacted with a pretty sharp decline,” Sean Bandazian, an investment analyst at Cornerstone Wealth, told Insider, noting that what has moved gold historically is the level of real interest rates. Real yield refers to the level of the 10-year yield rate minus the rate of inflation.
“The real rate backed down to where it was in February and gold, given its inverse correlation, almost perfectly has moved up to where it was [three months ago],” said Bandazian.
“Gold is 45% correlated with the 10-year Treasury bond. As fears of a Fed tapering recede after the weak employment report … gold is moving higher,” wrote Jay Hatfield, founder and CEO of Infrastructure Capital Advisors.
The 10-year yield, meanwhile, pared its loss. It’s possible that the “excessive reaction this morning” in the bond market triggered stops on the short side of the 10-year bond after the yield dropped below 1.5%, said Bandazian.