Gold prices fell sharply amid dollar strength following a jobs report showing the US economy created more jobs than expected in January, while signs of wage growth lifted investor expectations for a faster pace of rate hikes.
Gold futures for February delivery on the Comex division of the New York Mercantile Exchange rose by $9.80, or 0.73%, to $1,337.80 a troy ounce.
The Labor Department said Friday, U.S. non-farm payrolls rose by 200,000 jobs in January. That beat economists’ forecasts for 184,000 new jobs. While unemployed remained at unchanged on the prior month at 4.1%.
Wage growth met expectations rising 0.3%, and was revised upward to 0.3% for December.
Signs of faster wage growth will be welcomed by the Federal Reserve as it has long held the belief that tighter labor markets would spur wage growth, leading to a faster pace of inflation. Analysts on Friday appeared to endorse Fed’s stance on tighter labor markets boosting inflation, as they revised upward their forecast for both inflation and the number of rate hikes for the year.
BNP Paribas revised upward its assessment of core PCE inflation, the Fed’s preferred measure of inflation, to 2.2% from 2.0% previously, and said it expects the Fed to raise rates four times in 2018 compared to the prior estimate of just three hikes.
The upbeat jobs report appeared to sway some of the more dovish Fed members as Neil Kaskahi, in a CNBC interview, said ongoing wage growth may impact interest rates.
In a rising interest rate environment, investor appetite for gold weakens as the opportunity cost of holding the precious metal increases relative to other interest-bearing assets such as bonds.