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Gold retreats from 3-month high, as optimistic jobs report lifts dollar

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Shutterstock photo - -- Gold was relatively flat on Friday amid a resurgent dollar, as a relatively optimistic U.S. jobs report provided hawkish members of the Federal Reserve with more ammunition to push for further interest rate hikes as it judges whether economic conditions are strong enough to support continued financial tightening.

On the Comex division of the New York Mercantile Exchange, gold for April delivery traded in a broad range between $1,145.60 and $1,163.40 an ounce, before settling at $1,157.60, down 0.10 or 0.01%. At session highs, gold reached a fresh three-month high for the third consecutive trading day. Despite the slight declines, the precious metal posted its strongest week of the year surging more than 3.3%.

Since falling to six-year lows in early-December, gold has gained more than $100 an ounce.

Gold likely gained support at $1,046.20, the low from December 3 and was met with resistance at $1,182.70, the high from Oct. 28.

On Friday morning, the U.S. Department of Labor said nonfarm payrolls increased by 151,000 in January, falling considerably from a downwardly revised 262,000 in December. The sharp declines were blamed in large part to unseasonably warm temperatures over the previous month, which created an unanticipated demand for labor in the construction industry. After two months of robust gains, the headline dipped under 200,000 for the first time since September.

The unemployment rate, meanwhile, inched down 0.1% to 4.9%, dropping to its lowest level since February, 2008. The U-6 unemployment rate, a broader gauge of the national employment situation, remained unchanged at 9.9%, one-tenth above its November low when it fell its lowest level since May, 2008. The reading, which measures the total level of unemployed workers plus those marginally attached to the labor force, stood at 11.1% last October. The indicator also accounts for workers who are no longer looking for a job, but have looked for one over the last 12 months.

By comparison, the alternative measure of underemployment peaked at 18% in January, 2010, as the nation continued to recover from the Financial Crisis. The U-6 rate is a preferred measure of unemployment by Fed chair Janet Yellen as she assesses the strength of the U.S. labor market.

The strength in the report lies in the average wages category where hourly earnings jumped by 0.5%, amid major increases in state minimum wage floors in numerous regions throughout the country. On an annual basis, wages are up by 2.5% from their January, 2015 level.

An increase in wage-push inflation could be viewed as a signal from the Fed that prices throughout the economy are ready to move upward. Last month, Core PCE inflation came in at 1.4%, significantly below the U.S. central bank's targeted objective of 2%. The Core PCE Index, which strips out volatile food and energy prices, is the Fed's preferred gauge for inflation.

As sluggish inflation remains low, the Fed is wary of potentially triggering a deflationary spiral by tightening its cycle too abruptly. In December, the Federal Open Market Committee (FOMC) abandoned a seven-year zero interest rate policy by raising short-term interest rates for the first time in nearly a decade. While the Fed signaled in early-January that it could hike rates as much as four times this year, the FOMC said in its monetary policy statement last month that it could proceed more gradually if the global economy continued to struggle and long-term inflation projections remained far below its target.

Any rate hikes this year are viewed as bearish for gold, which struggles to compete with high-yield bearing assets in rising rate environments.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, gained more than 0.60% to an intraday high of 97.29. Previously, the index had slumped over 3% this week as investors braced for a disappointing employment report.

Dollar-denominated commodities such as gold become more expensive for foreign purchasers when the dollar appreciates.

Silver for March delivery fell 0.065 or 0.44% to 14.755 an ounce.

Copper for March lost 0.027 or 1.27% to 2.104 a pound. offers an extensive set of professional tools for the financial markets.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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