gold investment, silver investment

Metals Market

Aug. 22 ($ / troy oz.)
  • SPDR Gold Shares (GLD ETF)

    -0.24 decrease 116.83
  • IShares Silver Trust (SLV ETF)

    0.00 no change 15.57
arkadiusz-sieron

Gold Prices Choppy after Payrolls

January 9, 2018, 7:58 AM Arkadiusz Sieroń , PhD

The U.S. economy added only 148,000 jobs in December. Gold prices reacted in a choppy way, confusing some analysts. Why?

December Payrolls Disappoint

Total nonfarm payroll employment increased only 148,000 in December, the slowest pace in three months. The employment gains were generally widespread, but the biggest employers were construction (+30,000), leisure and hospitality (+29,000), education and health services (+28,000), and manufacturing (+25,000). The latter rise is a particularly bright spot, given the not-so-distant problems of the sector. On the other hand, retail trade cut 20,000 jobs, which confirms that some traditional brick-and-mortar stores struggle.

The rise followed an increase of 252,000 in November (after an upward revision), according to the U.S. Bureau of Labor Statistics. This is slowdown. An unexpected slowdown. The markets anticipated 191,000 job gains in the previous month. Moreover, employment gains in October and November combined were 9,000 lower than previously reported. When it comes to the medium term, the annual job growth rate remains in a downward trend, as the chart below shows.

Chart 1: Total nonfarm payrolls (red line, right axis, percent change y-o-y) and gold prices (yellow line, left axis, London P.M. Fix, $) over the last five years.

Total nonfarm payrolls and gold price

On the surface, the report should be negative news for the U.S. labor market and positive for the gold market. However, the price of gold didn’t rally (see the chart below), making many so-called experts uncomfortable. Why?

Chart 2: Gold prices from January 5 to January 8, 2018.

Gold prices over the last three days

Labor Market Remains Solid

The first reason is that the Employment Situation Report showed that the U.S. labor market remained healthy. Job gains averaged 204,000 in the last three months, significantly more than what is needed to keep up with the growth of population. In the whole year, about 2 million jobs were created. Moreover, the unemployment rate stayed at 4.1 percent, a pleasingly low level. And wages saw gains. Average hourly earnings rose by 9 cents to $26.63. It means that they jumped 2.5 percent in 2017. Does this look like an economic slowdown to you? Neither does it to precious metals traders. Although the price of gold jumped initially from $1,316 to $1,321 after the release of the report, the direction was quickly reversed and the yellow metal fell below $1,314, just to steadily undo the losses. Gold can be quite choppy, can’t it?

Inflation Still Lacking

Another issue is that inflation is still subdued. This is why data on inflation is now much more important for the Fed and, thus, markets. Everyone sees that the labor market remains tight and economic growth is picking up. What is missing to fully please the monetary hawks is the inflation reaching the U.S. central bank’s target. This is why gold does not react as strongly to nonfarm payrolls as it used to in the past. Even if the headline surprises (within a certain range), the general outlook for the U.S. labor market will remain positive and little changed.

Conclusions

The December U.S. nonfarm payrolls were worse than expected. The economy added only 148,000 jobs in the last month, significantly below expectations. But the price of gold didn’t rally. This is because the number was much more than Fed needed to maintain its policy of gradual tightening. The unemployment remains low and the labor market still looks solid. Surely, if the slowdown continues, the FOMC may become more cautious. However, it should remain on track to raise interest rates in March and twice later in the year. Indeed, San Francisco Fed President John Williams said on Saturday that the Fed should raise interest rates three times this year given the strong economy, while Cleveland President Loretta Mester expected roughly four interest rate hikes. Don’t underestimate the power of the hawkish side!

If you enjoyed the above analysis, we invite you to check out our other services. We focus on fundamental analysis in our monthly Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. If you’re not ready to subscribe yet and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today.

Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.

Thank you.

Arkadiusz Sieron, Ph.D.
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

Gold News Monitor
Gold Trading Alerts
Gold Market Overview

Did you enjoy the article? Share it with the others!

Feb Market Overview

Gold Market Overview

In this edition of the Market Overview, we will examine what the Great Unwind implies for the U.S. dollar and gold. The tightening of monetary policy and higher interest rates could be negative for gold, but more hawkish BoJ and ECB would mean narrower divergence in monetary policies between the Fed and other major central banks.
We will answer the question of why the American currency has been falling like a stone recently, despite the Fed’s tightening cycle. We will also explore the historical bull and bear cycles in both gold and the U.S. dollar, as trend in this currency is likely to be the vital driver in the gold market in 2018.

Read more in the latest Market Overview report.

menu subelement hover background