Gold and silver prices are trading higher on Friday, after a disappointing U.S. jobs report for August boosted the appeal of the precious metals as safe-haven assets. The report also dampened expectations of an early tapering of stimulus by the Federal Reserve, which could weigh on the U.S. dollar and bond yields.
U.S. jobs report misses expectations
The U.S. Labor Department reported that non-farm payrolls increased by 187,000 in August, well below the consensus forecast of 170,000 and the previous month’s revised gain of 157,000. The unemployment rate rose to 3.8% from 3.5% in July, while average hourly earnings rose by 0.4%, slightly above expectations.
The report showed that the Delta variant of the coronavirus had a negative impact on the labor market recovery, especially in sectors such as leisure and hospitality, retail trade, and education. The report also suggested that labor supply constraints remained a challenge for employers, as many workers were reluctant to return to work due to health concerns, childcare issues, or enhanced unemployment benefits.
The weak jobs data reduced the likelihood of the Fed announcing a plan to reduce its monthly bond purchases at its next policy meeting in September. The Fed has said that it would start tapering its stimulus once it sees “substantial further progress” in the labor market and inflation. However, the latest report indicated that the progress was slower than expected, which could delay the Fed’s decision.
Gold and silver prices benefit from lower dollar and yields
The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, fell by 0.3% to 103.30 on Friday, after hitting a two-week high of 103.63 on Thursday. A weaker dollar makes gold and silver cheaper for holders of other currencies.
The U.S. Treasury yields also declined on Friday, as investors sought safety in government bonds amid uncertainty over the economic outlook and the Fed’s policy stance. The yield on the benchmark 10-year note fell by 4 basis points to 1.28%, while the yield on the 2-year note dropped by 3 basis points to 0.19%. Lower yields reduce the opportunity cost of holding non-interest-bearing assets such as gold and silver.
Gold prices rose by $13.60 to $1,980 per ounce on Friday, hitting a three-week high and extending their weekly gain to 1%. Silver prices also advanced by $0.398 to $25.215 per ounce, posting a weekly increase of 2%.
Other factors supporting gold and silver prices
Apart from the U.S. jobs data, there were other factors that supported gold and silver prices on Friday.
- China’s Caixin manufacturing purchasing managers index (PMI) for August came in stronger than expected at 51.0, indicating an expansion in factory activity despite the impact of COVID-19 outbreaks and supply chain disruptions. China is one of the largest consumers of gold and silver in the world.
- The Eurozone’s inflation rate rose to a 10-year high of 5.5% in August from 5.3% in July, driven by higher energy and food prices. The core inflation rate, which excludes volatile items such as food and energy, edged down to 5.3% from 5.5%. The rising inflation could increase the demand for gold and silver as hedges against inflation.
- The geopolitical tensions between the U.S. and China over Taiwan, as well as the humanitarian crisis in Afghanistan, also added to the risk aversion sentiment among investors, boosting the appeal of gold and silver as safe-haven assets.
