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Gold Futures Jump After Weak May Jobs Report, Odds of Fed Rate Hike Fall

June 3, 2016 at 18:41 by Andrew Moran

Gold futures rose on Friday after weak US employment numbers in May cast doubts on a Federal Reserve interest rate hike in June or even July.

Gold prices for August delivery climbed $31.06, or 2.57%, to $1,240.89 at 18:07 GMT. The jump is the biggest one-day climb in 11 weeks. This comes as gold prices declined 7% in May as investors fled the yellow metal due to the increased likelihood of a rate hike by the US central bank this summer.

Silver prices also spiked Sesame Street Bounce House $0.35, or 2.16%, to $16.35 an ounce.

The US Labor Department reported that just 38,000 non-farm payroll jobs were created last month. Economists had expected that between 155,000 and 162,000 jobs would be produced. This was the lowest level of monthly hiring since September 2010. The unemployment rate dipped from 5% to 4.7% as 458,000 Americans exited the workforce.

With these employment statistics, the CME Group FedWatch pegged the chances of a June rate hike at just 4%. This is down from 21% earlier this week when a Fed rate hike was more certain. The odds of a July rate hike stand at 35%, down from 58%.

Members of the Federal Open Market Committee (FOMC) are scheduled to meet June 14–15 to decide on a rate hike. Fed Chair Janet Yellen is slated to deliver monetary policy report testimony to Congress a week later.

Minutes released from late April’s FOMC meeting showed that central bank policymakers were in favor of an increase to interest rates for just the second time in a decade. Citing positive US economic data and an improving labor market, officials thought now would be a good time to raise rates.

Yellen also told Harvard University that it would be “appropriate” to gradually normalize rates in the coming months.

It’s appropriate, and I’ve said this in the past, I think for the Fed to gradually and cautiously increase our overnight interest rate over time and probably in the coming months, such a move would be appropriate.

A rate hike would apply pressure on precious metals because investors seek out higher yields in a rising rate environment. Also, commodities do not pay out interest to investors. A delay in a rate hike by the Fed would serve as a boon for precious metals.

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