The jobs data beat expectations last week, which led to both gold and silver selling off into the close. This morning we are seeing the overhang of that as perhaps those traders, who are a bit late to the party, are panic selling. With low liquidity at this time of the week combining with a large number of stop losses being triggered, we have seen a volatile open to start the week.

The battering for gold early on Monday has sent the spot price heading toward a long-term support area not far below the USD1,700-line. The metal has bounced off the zone a few times since April 2020. However, the approach of Jackson Hole and relatively thinner markets could mean gold bulls are less likely to stick around this time.

Overall, Friday’s NFP was a strong report with better-than-expected numbers on job creation, unemployment, and wage growth. This will keep tapering front and centre in the Federal Reserve policy conversation over the next few months.

The shortfall in the hard-hit leisure and hospitality sector has narrowed to 10%. There’s still a long way to go to get back to normal there, but it is recovering quickly and wages are rising at a rapid pace. It’s not just the leisure and hospitality sector either: Employment gains across industries were broad-based. That may temper some of the conversation surrounding the impact that constraints on labour supply are having on hiring, which has dominated the narrative over the past few months.

Market reaction shows taper may come soon. Treasury yields climbed after the report, with 10-year yields jumping almost 7 basis points before paring gains. Gold extended its slump, and silver tumbled, after a stronger-than-expected US jobs report fuelled bets that the Federal Reserve may start paring back its massive monetary stimulus soon.

Spot bullion fell more than 4% and silver slumped as much as 7% as the selloff following Friday’s employment figures initially accelerated at the start of Asian trading. Dallas Fed President Robert Kaplan said the central bank should start tapering its asset purchases sooner rather than later, and in a gradual manner, fanning expectations that stimulus will be reined in.

Gold has been losing ground on investor’s concern that an improving US economy and rising inflation will spur the Fed to pull back on unprecedented economic support. Low rates help make bullion more competitive against assets that offer yields, while the strengthening dollar and record equity markets are also curbing demand for the safe-haven metal.

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Fullerton Markets Research Team
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