Gold roars back as U.S. economys jobs creation falls off cliff

And thus died the June rate hike, wrote Ian Shepherdson of Pantheon Macroeconomics after the Labor Department released the most devastatingly dismal employment data since September 2010.

And as odds of a Federal Reserve interest-rate increase expired, gold roared back to life, rising from session lows near $1,210 to execute a more than 2% surge back above $1,240 its best one-day showing in seven weeks. Silver also gained, rising 2.4% to hit $16.35.

What fueled golds resuscitation? Though the unemployment rate fell to 4.7%, the nonfarm-payrolls report showed that only 38,000 jobs were created in May well short of the roughly 165,000 expected while Aprils print of 160,000 was reduced to 123,000.

Not even a magician can take this number and make it sound good, Prudential Financial strategist Quincy Krosby told The Wall Street Journal. For a Fed that seems to want to raise rates, this is not helpful.

Recoverys bubble laid bare: That was very disappointing and adds a lot of uncertainty to a market that was gearing up for a summer rate hike from the Fed,Danske Bank analyst Allan von Mehren told Bloomberg. It makes people question the real strength of the labor market.

Just when they come out and start talking about how good the economy is, we get some of the worst economic data in the recovery, Euro Pacific Capital chief Peter Schiff added. This recovery has never been real. Its always been a bubble, and bubbles pop. Thats their nature.

The only thing keeping the Fed from cutting rates right now and admitting the economys in trouble is A) their credibility, and B) the election, he said. They dont want to admit how weak the economy is and undercut (President Barack) Obama and (Democratic presidential front-runner) Hillary (Clinton).

Goldman sees zero chance of June hike: FTN Financial called the jobs report awesomely bad, while Goldman Sachs declared, We have revised our subjective odds of the timing of the next FOMC rate increase. We now see probabilities of 0% for June, 40% for July, and 30% for September.

Likewise, the CMEs FedWatch tool, which tracks futures bets on Fed action, also indicated that Wall Street thinks the central banks hawks have been silenced for now in the wake of the report.

Indeed, Fed Governor Lael Brainard sounded cautious on the timing of the next rate increase. In this environment, prudent risk management implies there is a benefit to waiting for additional data, she told the Council on Foreign Relations.

Now that the Fed likely is on hold, the dollar fell along with Treasury yields, while stocks also were in the red by early afternoon.

With all the analysts coming out of the woodwork to declare gold dead after the Fed started making some rate-hike noises, the new jobs report is a serious wakeup call. Certainly we could see the market back up to $1,300 again, trader Eric Zuccarelli told CNBC.

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