By Barani Krishnan

Investing.com — Gold began April trading with a fairly large slide on the week as the U.S. unemployment rate fell despite an underwhelming monthly addition in jobs that suggested the economy might not fare too badly — reducing the need for investors to rely on safe havens.

The contract on New York’s Comex settled down $30.10, or 1.5%, at $1,919.20 an ounce. The week’s decline was 1.8%. It was the second largest weekly drop in three weeks, compared to 6.6% for its first quarter gain.

Gold is often used as an economic or political hedge. In March, Comex’s front-month contract got to as high as $2,070 — just $42 from rewriting below the August 2020 record high of $2,121 — amid turbocharged U.S. inflation and a bubbling of geopolitical tensions right after Russia’s invasion of Ukraine.

On Friday though, gold fell as the U.S. jobless rate improved to 3.6% in March from 3.8% in February despite jobs growth for the month coming in at 431,000 — some 12% below economists’ expectations.

A jobless rate of 4% and below is defined by the Federal Reserve as “full employment.” The United States has technically had full employment since December when the jobless rate fell to 3.9%.

“A strong employment report has gold on the ropes even as the Treasury yield curve inverts again,” Ed Moya, analyst at online trading platform OANDA, said, as the yield on the jumped for the first time in six days.

“The shorter-end of the (yield) curve is steepening and while recession risks for down the road are growing, the economy is still looking very good right now,” Moya said. “Gold seems like it could still trade between the $1,900 and $1,950 range, but .

Fed officials closely monitor monthly job growth and declines to determine the necessary rate increases to limit inflation. This is to ensure that the economy does not expand faster than the Fed expects.

The US economy contracted 3.5% in 2020 due to disruptions caused by COVID-19. In 2021 it grew by 5.7%, its highest rate since 1982.

But inflation grew even more. Personal Consumption Expenditure Index (a US indicator that is closely tracked by the Fed) rose by 5.8% and 6.4% respectively in the 12-months to February. These readings were also the most recent since 1982. The Fed’s own tolerance for inflation is a mere 2% per year.

After the outbreak of coronavirus in March 2020, rates were cut to almost zero by the central bank. Rates are kept unchanged for two additional years to facilitate economic recovery. Last month, for the first time since the pandemic, the Fed’s policy-making Federal Open Market Committee, or FOMC, raised rates by 25 basis points, or a quarter percentage point.

Now, unyielding inflation is prodding FOMC officials to consider a 50-basis point, or half percentage point, increase at the committee’s next two meetings in May and June. To bring inflation back up to its target of 2%, the central bank stated it would raise rates by no more than seven times this fiscal year.

Fed Chairman Jerome Powell said last month the labor market was “extremely tight” with robust demand and subdued supply. Powell also pointed out that over a million jobs were filled in the first two months.

The government’s monthly Job Openings And Labor Turnover Summary report earlier this week showed that job openings hovered near record highs in February as vacancies continued to outpace hires in an unemployment market that remained overwhelmingly in favor of workers.