Gold gains on hopes for low rates post bleak US employment data

Gold prices rose on Monday, hovering near a three-month peak, as a miss in the US jobs numbers last week cemented expectations that interest rates will remain low for some time, denting the dollar and boosting non-yielding metal’s appeal.

Spot gold was up 0.4 per cent to $1,836.80 per ounce by 1022 GMT, after hitting its highest since Feb.11 at $1,842.91 on Friday. US gold futures gained 0.4 per cent to $1,838.10.

“We are seeing a carry over this morning from Friday’s non-farm payrolls figures which were surprisingly disappointing. Clearly both the US dollar and yields remain on the back foot, supporting gold,” said independent analyst Ross Norman.

US nonfarm payrolls data on Friday showed jobs growth unexpectedly slowed in April, pushing the dollar to a more than two-month trough, making gold less expensive for holders of other currencies.

Lower-than-expected nonfarm payrolls numbers came as a speed bump on investors hopes over roaring recovery in the world’s largest economy and tampered down bets over US Federal Reserve tightening policy earlier than expected.

The US central bank has pledged to keep interest rates low until inflation and employment pick up. Lower interest rates decrease the opportunity cost of holding non-yielding bullion. “After weeks of snail-like progress higher, gold has suddenly accelerated higher, driven by a weaker US dollar and ebbing fears of an early Federal Reserve taper,” OANDA senior market analyst Jeffrey Halley said in note.

Elsewhere, palladium rose 1.3 per cent to $2,964.85 per ounce after hitting an all-time high last week on supply shortfall worries.

“We expect the (palladium) market to continue tightening over the next 3 months on auto restocking and the lingering impact from Norilsk supply disruptions,” Citi analysts said in a note.

UBS expects the palladium market to be undersupplied by about 1 million ounces in 2021.

Silver climbed 1.1% to $27.74 while platinum was up 1.3 per cent to $1,265.51.

The dollar held at 2-1/2 month lows on Monday as a weak US employment report spurred investors to unwind growing long positions in the greenback, with major rivals including the British pound and Australian dollar testing key levels.

The dollar index, which measures the greenback against six rivals, stood at 90.13, broadly flat on the day, after dipping as low as 90.128 for the first time since Feb. 26 earlier in the session. The greenback’s losses in London trading were at odds with the broader markets where equity prices were higher and benchmark US Treasury yields well above Friday’s lows.

“There are plenty of key technical levels now broken on the pound and the Aussie, and without support from a Fed unwilling to taper, let alone raise rates, the dollar could have some hard sessions ahead,” said John Marley, CEO of forexxtra, a London-based FX consultancy.

The United States created a little more than a quarter of the jobs that economists had forecast last month and the unemployment rate unexpectedly ticked higher, casting doubt on whether the Fed would consider advancing the timeline for tightening policy in the coming months.

“The more erratic the recovery on the US labour market, the longer the Fed will take to consider rate steps,” Commerzbank strategists said in a daily note.

Even before the big payrolls miss, Fed Chair Jerome Powell had argued the US labour market is far short of where it needs to be to start talking of tapering asset purchases, and that a near-term spike in inflation will be transitory.

Several Fed officials will have a chance to reinforce that message this week, beginning with Governor Lael Brainard on Tuesday.

POUND SOARS: The British pound was the biggest gainer among the most-traded currencies, rallying 0.8 per cent above $1.41, the highest since Feb. 25. This was despite Scotland’s leader saying that another referendum on independence is inevitable after her party’s resounding election victory.

Such a referendum requires the backing of the UK government in London and Prime Minister Boris Johnson has ruled out holding another vote, saying the country faces more pressing challenges such as economic recovery from the coronavirus pandemic.

The Australian dollar was another beneficiary of the weakening dollar trend, with a surge in commodity prices also supporting the Antipodean currency. The Aussie dollar traded close to a more-than-two-month high at $0.7884, while the US dollar fell to a fresh 3-1/2-year low of $1.2111 against its Canadian rival.

The euro rose 0.1% to $1.2170, earlier touching the highest since Feb. 26 at $1.2177. “The unexpected slow recovery in the US labour market reinforces the FOMC’s patient approach to monetary policy,” while “the improving global economic outlook is a medium-term weight on the USD,” Commonwealth Bank of Australia strategist Kim Mundy wrote in a client note, predicting a break above $1.22 for the euro.