Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Risks to Global Economy is Balanced: Stock Market upside limited short term - 20th Jan 20
How Digital Technology is Changing the Sports Betting Industry - 20th Jan 20
Is CEOs Reputation Management Essential? All You Must Know - 20th Jan 20
APPLE (AAPL) AI Tech Stocks Investing 2020 - 20th Jan 20
FOMO or FOPA or Au? - 20th Jan 20
Stock Market SP500 Kitchin Cycle Review - 20th Jan 20
Why Intel i7-4790k Devils Canyon CPU is STILL GOOD in 2020! - 20th Jan 20
Stock Market Final Thrust Review - 19th Jan 20
Gold Trade Usage & Price Effect - 19th Jan 20
Stock Market Trend Forecast 2020 - Trend Analysis - Video - 19th Jan 20
Stock Trade-of-the-Week: Dorchester Minerals (DMLP) - 19th Jan 20
INTEL (INTC) Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 18th Jan 20
Gold Stocks Wavering - 18th Jan 20
Best Amazon iPhone Case Fits 6s, 7, 8 by Toovren Review - 18th Jan 20
1. GOOGLE (Alphabet) - Primary AI Tech Stock For Investing 2020 - 17th Jan 20
ERY Energy Bear Continues Basing Setup – Breakout Expected Near January 24th - 17th Jan 20
What Expiring Stock and Commodity Market Bubbles Look Like - 17th Jan 20
Platinum Breaks $1000 On Big Rally - What's Next Forecast - 17th Jan 20
Precious Metals Set to Keep Powering Ahead - 17th Jan 20
Stock Market and the US Presidential Election Cycle  - 16th Jan 20
Shifting Undercurrents In The US Stock Market - 16th Jan 20
America 2020 – YEAR OF LIVING DANGEROUSLY (PART TWO) - 16th Jan 20
Yes, China Is a Currency Manipulator – And the U.S. Banking System Is a Metals Manipulator - 16th Jan 20
MICROSOFT Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 15th Jan 20
Silver Traders Big Trend Analysis – Part II - 15th Jan 20
Silver Short-Term Pullback Before Acceleration Higher - 15th Jan 20
Gold Overall Outlook Is 'Strongly Bullish' - 15th Jan 20
AMD is Killing Intel - Best CPU's For 2020! Ryzen 3900x, 3950x, 3960x Budget, to High End Systems - 15th Jan 20
The Importance Of Keeping Invoices Up To Date - 15th Jan 20
Stock Market Elliott Wave Analysis 2020 - 14th Jan 20
Walmart Has Made a Genius Move to Beat Amazon - 14th Jan 20
Deep State 2020 – A Year Of Living Dangerously! - 14th Jan 20
The End of College Is Near - 14th Jan 20
AI Stocks Investing 2020 to Profit from the Machine Intelligence Mega-trend - Video - 14th Jan 20
Stock Market Final Thrust - 14th Jan 20
British Pound GBP Trend Forecast Review - 13th Jan 20
Trumpism Stock Market and the crisis in American social equality - 13th Jan 20
Silver Investors Big Trend Analysis for – Part I - 13th Jan 20
Craig Hemke Gold & Silver 2020 Prediction, Slams Biased Gold Naysayers - 13th Jan 20
AMAZON Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 11th Jan 20
Gold Price Reacting to Global Flash Points - 11th Jan 20
Land Rover Discovery Sport 2020 - What You Need to Know Before Buying - 11th Jan 20
Gold Buying Precarious - 11th Jan 20
The Crazy Stock Market Train to Bull Eternity - 11th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Can Gold Recover from Friday’s Strong Payrolls Hit?

Commodities / Gold & Silver 2019 Jul 10, 2019 - 04:44 PM GMT

By: Arkadiusz_Sieron

Commodities

And here we go again. Gold slipped below $1,400 per ounce. This is where it fell after stronger-than-expected June Employment Report. How does that key piece of economic data play into the market’s rate cuts expectations? And how does it all impact gold?

June Payrolls Surpass Expectations

The U.S. created 224,000 jobs in June, following a disappointing increase of 72,000 in May (after a downward revision). The number surprised positively, as the economists polled by the MarketWatch forecasted 170,000 created jobs. The gains in hiring last month were widespread, but with a leading role of education and health services (+61,000) and professional and business services (+51,000). Only retail trade and mining cut jobs.


However, the strong headline number was accompanied by downward revisions in May and April. Counting these, employment gains in these two months combined were 11,000 lower than previously reported. Consequently, job gains have averaged 171,000 per month over the last three months, which is lower than not so long ago (in 2018, the average gain was 223,000 per month).

So, the pace of hiring has slowed, as the chart below shows. But the economy is still creating jobs at a reasonable pace. The U.S. labor market is likely to further contribute to the longest expansion on record. What is crucial here, is that the nonfarm payrolls rebounded in June from May, calming worries about the health of an economy. Gold bulls surely aren’t cheering that.

Chart 1: U.S. nonfarm payrolls (red bars, left axis, change in thousands of persons) and the annual growth in average earnings in the private sector (green line, right axis, %) from June 2014 to June 2019.

Wage Growth Flat, while Unemployment Rate Rises

What about the other indicators? The average hourly earnings for all employees on private nonfarm payrolls rose by 6 cents to $27.90, which means a 3.1 percent increase over the last twelve months. The rate of wage inflation was unchanged from May, although slower than at the beginning of the year, as the chart above shows.

Importantly, the unemployment rate edged up from 3.6 to 3.7 percent, as one can see in the chart below. Should we be worried? On the one hand, the unemployment rate is a powerful recession indicator, so its rise might be worrisome.

Chart 2: The unemployment rate U3 from June 2014 to June 2019

On the other hand, the indicator is still near a 50-year low. And it increased amid more people looking for a job. More than 300,000 people entered the labor force in search of work in June, lifting the participation rate from 62.8 to 62.9 percent. Hence, we believe although the development of the unemployment rate requires attention, the recent rise is not a point of concern yet. It is still below the natural unemployment rate, and the Sahm’s indicator we analyzed in detail in this month’s edition of the Market Overview, does not flash alarm. Gold bulls better be patient.

Implications for Gold

What does it all mean for the gold market? The June Employment Report was stronger than expected. The unemployment rate edged up, but it was caused by more people entering the labor force, so it should not be a point of concern yet. The nonfarm payrolls surpassed expectations, easing concerns about the state of economy that emerged after the weak May report.

Consequently, investors scaled back bets of an aggressive interest rate cuts. This is exactly what we predicted on June 2, writing in the Gold News Monitor:

A 50 basis points cut is definitely excluded, although the markets still see more than 20 percent chance of such a move. So, the expectations for the Fed cuts could weaken somewhat or shift to September or later this year. All this seems to be negative for the gold prices.

Indeed, the markets still expect one 25-basis points interest rate cut in July, but now the odds of a 50-basis points reductions amount only to 6 percent, compared to 25 percent one week ago. As investors adjusted finally their overly dovish expectations, the bond yields jumped, while the price of gold dived again below $1,400.

Now, what next? We believe that even 25-basis points cut is not justified by the economic outlook. And the precious metals investors should not downplay the possibility that the Fed would end up delaying the cut and pushing back its dovish perception, in part to show its political independence from the White House. However, because of the Wall Street’s addiction to loose monetary policy, the FOMC could be forced to cut the federal funds rate at its next meeting. The Powell’s testimony in Congress this week should provide us with more clues about the current Fed’s stance. Stay tuned!

If you enjoyed the above analysis and would you like to know more about the gold ETFs and their impact on gold price, we invite you to read the April Market Overview report. If you're interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts . If you're not ready to subscribe at this time, we invite you to sign up for our gold newsletter and stay up-to-date with our latest free articles. It's free and you can unsubscribe anytime.

Arkadiusz Sieron
Sunshine Profits‘ Market Overview Editor

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Arkadiusz Sieron Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules