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Metals Stocks: Gold tops $1,800 as traders focus on inflation and weak labor participation after upbeat U.S. jobs data

Gold prices climbed back above $1,800 an ounce on Friday, after data showing the U.S. created more jobs than expected, though a disappointing number of people chose to join the workforce last month and rising inflation dulled prospects for stronger economic growth.

U.S. companies added 531,000 jobs in October, with that increase almost double the number of job gains in September and well above the 450,000 new jobs expected by economists polled by The Wall Street Journal.

The NFP data was “excellent and far exceeded expectations,” but gold likely “benefitting from labor participation rate still holding steady below 62%; an overheated labor market would be about 1% higher,” Jeff Wright, chief investment officer at Wolfpack Capital, told MarketWatch. Data on Friday showed the labor participation rate at 61.6%.

The Federal Reserve is “always cautious when labor participation is not robust and pays less attention to the headline unemployment rate of 4.6% vs 4.8% — plenty of folks who could return to work [are] not doing so,” said Wright. 

“The tapering implementation is a ways off and not as drastic as some experts had feared or warned of,” he said.

Traders have also focused on inflation, with the consumer price index and producer price index numbers due out next week, said Chintan Karnani, director of research at Insignia Consultants. “It is all about inflation and its potential impact on Fed’s monetary policy for bullion.” 

Gold for December delivery
GC00,
+0.41%

GCZ21,
+0.40%

was up $6.70, or 0.3%, at $1,800.20 an ounce on Comex after trading as high as $1,805.40. For the week, prices for the front-month contract traded about 0.8% higher.

December silver
SI00,
+0.10%

SIZ21,
+0.10%

rose 4.9 cents, or 0.2%, at $23.96 an ounce, eying a weekly decline of 0.3%.

Despite the strong jobs data, Treasury yields fell on Friday, lowering the opportunity cost of holding nonyielding assets such as gold, with yield on the 10-year Treasury note BX:TMUBMUSD10Y down 1.481%, compared with 1.524% on Thursday.

Gold futures had climbed 1.7% on Thursday as Treasury yields also retreated after the Federal Reserve on Wednesday announced widely expected plans to begin tapering its bond purchases and signaled it would remain patient on raising interest rates.

Read: Why gold has climbed in the wake of the Fed’s decision, but still trades lower for the year

Gold has remained trapped in a $30 range from $1,770 to $1,800 an ounce, said Peter Cardillo, chief market economist at Spartan Capital Securities, in a note.

“Solid buying is noted towards the lower end if the range, while liquation remains at the higher end, suggesting for now the battle to overcome strong resistance at the higher end of the range remains a problem,” he said. “However, with the Fed now on course in paving the way for a monetary policy tightening next year, the gold market is likely to remain dull at best.”

Wolfpack Capital’s Wright said he believes gold is “about neutral” at this point, and prices could go either way. The $1,800 level is “an important barrier,” which gold has not been able to sustain in the past, but if prices push through that mark, gold “could accelerate quickly,” he said.

In other Comex metals trading, December copper
HGZ21,
-0.09%

fell 0.3% to $4.306 a pound, with most-active contract prices down over 1%.

January platinum
PLF22,
+0.26%

lost 0.2% to $1,026.80 an ounce, but traded around 0.6% higher for the week. December palladium
PAZ21,
+1.36%

added 1.2% to $2,020 an ounce, contributing to a 2% weekly rise.

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