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Gold Futures Plummet After Strong US Jobs Report in July

August 5, 2016 at 17:28 by Andrew Moran

Gold futures tumbled after it was reported that the US economy added more than 250,000 jobs in July. Although the unemployment rate held steady at 4.9%, gold prices could not maintain that level of firmness.

December gold futures declined $19.39, or 1.43%, to $1,339.38 per ounce at 17:01 GMT on Friday. Prior to the report on the American labor market, gold was on track for its second consecutive weekly gain.

Silver also fell victim to the positive jobs numbers. September silver futures dipped $0.63, or 3.10%, to $19.77 an ounce. Silver has not been this low since the middle of July.

Even with Friday’s declines, both precious metals are still having a great year. Gold is up more than 23%, while silver has climbed about 43% year-to-date.

Despite the US economy’s tepid growth, the labor market added 255,000 jobs in July. This beats the initial market and Department of Labor expectations by between 18,000 and 40,000. The gains in employment were found in every major category, including professional and business services, the financial industry, and healthcare.

The US gross domestic product (GDP) rose just 0.8% in the first quarter and a mere 1.2% in the second quarter.

Friday’s employment numbers affected gold because it provides the Federal Reserve with more ammunition to raise interest rates in September, or at least sometime this year. The odds of a September rate hike jumped back up to 18%, according to the CME Group FedWatch tool, up from 12% just on Thursday.

In a rising rate environment, dollar-priced assets are more expensive to foreign buyers and the opportunity costs of owning gold diminish because the yellow metal does not offer any yield. With rates moving up, investors move into bonds and riskier assets, like oil and stocks.

Gold prices have been surging in the last month because of central banks presenting accommodative monetary efforts, sluggish global economic growth, and mixed economic signals in the US.

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