Bond Market Shrugs Off Strong Jobs Report, Gold Prices Follow Suit

Yesterday's US jobs report showed an unexpectedly strong gain in nonfarm payrolls, which should have triggered a sharp increase in Treasury yields. However, the bond market barely reacted, with the 10-year yield rising only about 1 to 2 basis points to around 4.77%. The 2-year yield moved more significantly, up about 5 basis points to near 4.39%.

The muted reaction can be attributed to the fact that the 10-year yield had already round-tripped through a wider range this week, influenced by oil prices and hawkish Fed rhetoric. However, Fed Governor Christopher Waller's more dovish remarks on Wednesday and Thursday pulled it back down to the 4.74% to 4.76% area.

The real yields, not payroll counts, set the medium-term price of gold. Real yields moved only modestly yesterday, continuing the pattern this week's rate-odds repricing already showed.

Speculative positioning also played a role in gold's price drop. The latest CFTC Commitments of Traders data shows managed-money speculators net long 144,747 gold futures contracts, up from 141,648 the week before. This indicates that speculators had built a stretched, crowded long book heading into the data release.

The positioning-driven drop in gold prices is distinct from a thesis-breaking drop, which would be a result of new information about the underlying asset. The cross-desk disagreement on September rate-hike odds also contributed to the ambiguity of the market's reaction.