Gold gained Friday, padding its weekly advance, as financial markets awaited the latest glance at the U.S. job market and its potential risk for inflation.
Gold investors have a mixed reaction to inflation news; long term, the metal is typically an inflation hedge but shorter term, any data that could accelerate Federal Reserve interest-rate hikes could lift the dollar and hurt gold.
Ahead of the report, December gold GCZ8, +0.42% was up $5.50, or 0.5%, at $1,207.20 an ounce. The metal has traded roughly 0.8% higher this week so far, according to FactSet data, based on the most-active contracts.
December silver SIZ8, +0.58% rose 8 cents, or nearly 0.5%, at $14.67 an ounce. Gold’s sister metal was on track for a weekly fall of 0.3%.
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The focus on wages takes center stage again on Friday when the government issues employment figures for August. The U.S. likely added 168,000 new jobs and the unemployment rate may have fallen a tick to 3.8%, according to the MarketWatch forecast of economists.
What financial markets really want to know is whether worker pay increases again. Higher pay has long been linked to rising inflation and is generally viewed by investors as a sign of upward price pressures.
The increase in the typical worker’s hourly pay climbed to a nine-year-high of 2.9% in the 12 months ended in August. By contrast, hourly pay rose 2% a year or less from 2010 to 2015. There’s a good chance wage growth will ease slightly in September to 2.8% due to seasonal oddities, economists say, but it’s unlikely to last. Other measures of wages and worker compensation have also surged.
Because precious metals—usually used as a haven by investors—don’t offer a yield, the commodity is vulnerable to a slump in a rising rate environment. That climate also tends to lift the dollar, in which gold is primarily priced. The Federal Reserve has already increased rates three times in 2018 and is expected to lift benchmark rates a fourth time in December, moves which can drive risk-free Treasury yields higher and undercut appetite for the yellow metal by comparison.
“Gold has a strange relationship with risk at the moment with investors appearing to favor Treasuries and the dollar due to the far more attractive yield on offer,” said Craig Erlam, senior market analyst with Oanda. “As long as the dollar remains strong, I think appetite for gold, even in risk-averse markets, is going to remain limited and traders may view rallies as an opportunity to sell.”
The 10-year Treasury note yield TMUBMUSD10Y, +0.69% traded around 3.21% Thursday, largely maintaining a move that took the yield to its highest levels since 2011 in recent sessions.
The ICE U.S. Dollar index DXY, +0.00% was little changed Friday but trades about 0.7% higher week to date.
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