Gold prices receive support
Gold prices are trading near session highs and could continue to rise, buoyed by a slowing U.S. labor market, following a weaker-than-expected private sector growth report in December, according to payroll processor ADP.
ADP reported on Wednesday that just 122,000 jobs were created last month, below expectations as consensus forecasts had expected a gain of 139,000 jobs.
“The labor economy slowed to a more modest pace of growth in the final month of 2024, with both hiring and wage growth slowing. The health care sector stood out in the second half of the year, adding more jobs than any other sector,” said Nela Richardson, chief economist at ADP.
Gold is showing positive momentum despite not seeing any significant moves in the face of disappointing labor market data. Spot gold was last trading at $2,655.70 an ounce, up 0.28% on the day.
In addition to slowing job growth, the ADP report also highlighted continued weakness in wage growth. Over the past 12 months, wages rose 4.6%, the slowest increase since July 2021. Meanwhile, wages for those who changed jobs rose 7.1%, down slightly from November.
Commodity analysts are keeping a close eye on the labor market as the Federal Reserve has highlighted it as a key factor in its monetary policy decisions. Although inflation remains high, weak job growth could force the Fed to cut interest rates more than expected this year.
Some economists say weak wage growth could ease inflationary pressures and give the Fed a little more flexibility in its monetary policy.
The precious metal is also getting a boost from central bank buying. The People’s Bank of China added 300,000 ounces to its gold reserves in December, bringing its total to 73.3 million ounces, indicating that China has resumed buying after a six-month pause last year.
Central banks around the world continued to drive gold demand in November 2024, with the majority of transactions being carried out by emerging markets, according to Krishan Gopaul, senior analyst for the EMEA region at the World Gold Council.
Silver supply shortage risk
Commenting on Kitco, Daniel Ghali - senior commodity strategist at TD Securities, said that gold prices will increase sharply in the second half of this year when the FED continues to cut interest rates.
“It’s hard to see in spot prices, but over the past month there has been a major disruption in the precious metals market. The threat of tariffs on metals is causing traders around the world to move metals from London and other global locations into the US, just to hedge against the risk that tariffs will be imposed on precious metals.
"Precious metals have traditionally been treated as currencies. But if they are taxed, traders holding short positions on metals stored elsewhere will suffer huge losses. To hedge against this risk, they are moving metals into the US," the expert said.
Ghali stressed that he was talking about actual metals, not contracts or financial instruments, which are being brought into the US on a massive scale, a situation that could cause a serious shortage of metals in the storage system.
“This is the biggest story in the commodities market right now. The silver market seems to be sleeping on this supply shortage,” Ghali warned.
