Gold futures soared on Wednesday over $1,200 an ounce after the release of soft non-farming payroll figures, stoking fears of a bleaker than expected jobs outlook when the U.S. monthly employment report is released later this week.
On the Comex division of the New York Mercantile Exchange, gold for June delivery surged $24.30 or 2.05% to $1,207.50 a troy ounce. Earlier on Wednesday morning, gold was priced at 1,183.20, ahead of the issuance of the ADP National Employment Report.
Last month, the U.S. Private Sector added 189,000 jobs for the month of March far below economists’ forecasts of the addition of 225,000, according to ADP. The subdued private sector job growth marked the lowest increase in seasonally-adjusted private employment nationwide since January, 2014.
The losses were especially pronounced among large companies, which produced some of its most disappointing figures in months. Employment at large companies with 500 or more workers decreased sharply in March, as the private sector added 19,000 jobs – down from 53,000 in February. Among companies with 1,000 workers or more the private sector added 12,000 jobs, compared with a spike of 43,000 jobs a month earlier.
“March job gains came in under 200,000 for the first time since January of last year,” ADP president and CEO Carlos Rodriguez said in a statement. “The decline was centered in the largest companies, those with 1000 or more employees.”
The report comes ahead of Friday’s highly-anticipated U.S. jobs report from the Bureau of Labor Statistics (BLS), which will be released while commodity markets remain closed for Good Friday. Last month, the BLS reported that unemployment nationwide declined to 5.5%, a development that fueled concerns among metal traders that the Federal Reserve could institute an interest-rate hike before the end of the summer. As a result, gold plunged by more than $20 an ounce, experiencing one of its most precipitous daily losses on the year.
The precious metal struggles to compete with yield bearing assets in periods of rising interest rates.
The worse than expected private sector data coincided with a downtick in U.S. manufacturing activity. The Institute for Supply Management said on Wednesday that its purchasing managers’ index (PMI) fell to a 14-month low of 51.5 in March, down from 52.9 a month earlier. Economists expected the index to fall only slightly to 52.5. U.S. construction spending, meanwhile, unexpectedly fell in February, experiencing a steeper decline than economists anticipated.
Consequently, the U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell 0.38% to 98.32. EUR/USD rose 0.45% to 1.0781 in U.S. afternoon trading.
Gold becomes less expensive for foreign purchasers as the dollar depreciates.
On Tuesday, gold fell to $1,178.30 an ounce – its lowest level since Mar. 20.
In China, the manufacturing purchasing index (PMI) edged up to 50.1, up from 49.9 in February. Analysts had expected it to decrease to 49.7 for the month.
China is the world’s largest consumer of copper and the second-largest purchaser of gold, behind India.