America's red-hot labor market is cooling and gold will benefit

[View this email in your browser]( [Youtube]( [Kitco Metals]( Editor's Picks [@neils_C]( Last week, we noted [gold]( relative strength as it faces significant headwinds from rising bond yields and the U.S. dollar. However, we also noted that despite this strength, the precious metals market lacks a catalyst that can drive it back to $2,000 and eventually record highs. Heading into the long weekend holiday, gold prices hit a brick wall at $1,980 an ounce, a critical psychological level in its long-term uptrend. Although gold is now stuck in a neutral trading channel, we can see the precious metal's potential when the right conditions have been met. This past week, we started to see some cracks forming in the U.S. labor market, which has been an essential pillar of strength for the economy so far this year. Gold's initial rally this week started after the [U.S. Labor Department reported that the number of job openings dropped to their lowest level since 2021]( and are close to reaching pre-pandemic levels. A day later, [private-sector payroll processor ADP said 177,000 jobs were created in August](. ADP said that the pace of job creation is in line with pre-pandemic levels. On the inflation side, wage inflation in the private sector saw a sharp drop last month. That brings us to Friday’s main event: U.S. nonfarm payrolls. Gold prices briefly hit a three-week high following what economists have described as a lukewarm employment report. Yes, [job creation beat expectations, as 187,000 jobs were created](. However, looking at the bigger picture, there were significant downward revisions to June and July’s employment data; wage inflation rose less than expected and the unemployment rate jumped higher. Although these three data points won’t force the Federal Reserve to abandon its tightening cycle, they show that economic conditions are starting to shift, and slack is building in the labor market. According to a growing number of analysts, if this trend in economic activity continues, gold prices could continue to benefit and it could be only a matter of time before prices break critical resistance levels. However, U.S. economic data and Federal Reserve monetary policies are only one aspect of the gold market. Let’s not forget that record central bank gold demand has helped support prices in what should be a challenging environment. In an interview with Chantelle Schieven, head of research at Capitalight Research, Schieven told Kitco News that given where bond yields and the U.S. dollar are, gold prices should be $100 to $200 lower. Central bank demand is a big reason why gold is building what appears to be a new base of around $1,900 an ounce. While the pace of purchases may have slowed through the summer, central banks continue to buy. According to data from the World Gold Council, Singapore’s Monetary Authority bought 2 tonnes of gold in July. So far this year, [Singapore’s central bank has bought 73.6 tonnes of gold](. It has been the second most active gold buyer, behind only China. At the same time, Qatar bought 3 tonnes of gold last month, lifting year-to-date purchases to 5 tonnes. And finally, Libya’s central bank bought 30 tonnes of gold in June, bringing its reserves to record levels of 147 tonnes, up 26% from last year. Analysts note that central banks will continue to be stronger buyers of gold as geopolitical instability is creating a multi-polar currency world. So, it appears that investor patience is slowly paying off; however, investors might still have to wait a little longer. That is it for this week. Have a great long weekend. Neils C. 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