Gold - Why the Jobs Report Was Worse Than It Looked

Gold trades around $4,345 today after a sharp rally on Friday, its best week since January. Only a week ago the metal was near $4,100, so this has been a fast move. The trigger was the US jobs report, and it surprised almost everyone.

The headline number was bad on its own. Instead of adding jobs, the US economy lost 23,000 of them in July. Economists had expected a gain of around 80,000. Wage growth also slowed, rising only 0.1% for the month against 0.3% expected.

Here's the part most reports skipped. The government also corrected its earlier numbers for May and June, and cut them heavily. After those corrections, the average job growth over the last twelve months is only about 34,000 per month. So this was not one weak month inside a strong year. The job market had been slowing for a long time, and the earlier data simply did not show it.

Why did gold react so strongly? Traders cut the chance of a September Fed rate hike from about 60% to 45%. The dollar fell to a two-week low and bond yields eased. Gold pays no interest, so it becomes more attractive whenever expected rates fall.

One number did not fit the picture: unemployment fell to 4.1% from 4.2%. That normally means strength. This time it happened because fewer people were counted as looking for work, not because more people found jobs.

Wednesday brings the next test. The US releases its inflation report. Weak jobs plus cooling inflation would support gold further. But if inflation stays high, the Fed faces a harder choice, and gold's path becomes less clear.

Gold key levels: 

• Resistance: 4,370, then 4,425
•  Support: 4,260, then 4,100

Watching: Wednesday's US inflation report, the dollar and bond yields, Hormuz and oil headlines.

By Born2trade market research department

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