Despite promising job data, the precious metal benefits from a labor participation rate of less than 62%; An overheated job market will be about 1% higher.
“There is no doubt” that the US labor market is tight, said Esther George, President of the Federal Reserve Bank of Kansas City, on Friday. It added that it would closely monitor how wage pressures and inflation expectations manifested themselves as they measured the economy’s progress toward full employment.
After the strong jobs reports, the 10-year Treasury yield fell below 1.46%, lowering the opportunity cost of holding gold.
The Fed’s no-hurry approach to raising interest rates and weak Treasury yields appears to be supporting the gold bulls.
Although the labor market report was strong, it will not alter what Federal Reserve Chairman Jerome Powell said earlier this week, that inflation will be “temporary” and will not warrant a rapid rate hike.
In a subsequent statement on Friday, European Central Bank policymakers said inflation is likely to decline next year, indicating that market expectations of a rate hike in October 2022 will not materialize.
The dollar index was flat on Monday, but fell 0.4% from its one-year high reached on Friday, making the bullion more attractive to buyers holding other currencies by lowering its cost.
The US Congress has passed a trillion-dollar bill for roads, bridges and airports.
As interest rates have almost lowered the opportunity cost of holding gold, the price of gold has risen over the past two years, as easy monetary policy spurred economic growth during the COVID-19 pandemic.
This article was originally published on FX Empire