Common Sense

After being cuffed around for much of the week, including early today, gold fought back with a vengeance. The reasons are contradictory and a little confusing.

Yes, indeed, there was renewed violence today in Ukraine, and the tensions seemed to be spreading and intensifying. Those facts alone can only explain some of the rise in gold.

It was the U.S. economy that first depressed gold, then launched it to a big gain as details of the texture of the stunning jobs report became clearer. The number of people who are not "looking for work" seems to be the sticking point.

"The market perceives the unemployment numbers as good on quantity but bad on quality," said Guy Lebas, chief fixed-income strategist at Janney Montgomery Scott in Philadelphia.

The U.S. economy added 288,000 jobs in April, extraordinarily more than the anticipated 210,000. But the report raised some worrisome aspects because it seems that more than 800,000 people left the U.S. labor force and average hourly wages were unchanged in April.  

We feel that the 800K number is a bit of a red herring no matter when it arises in the economic ebb and flow. It is especially a nettlesome data point when trying to assess the strength of employment numbers at this particular point in the demographic spinning wheel of life.

The U.S., as does much of the developed world, has a rapidly aging population. Many hundreds of thousands of people are retiring monthly. However, many are taking "sabbaticals" and returning to the workforce after six or twelve months off. If you track the "not looking for work" figures, you will find it is outlandishly volatile. Don't be surprised if it swings in a different direction for May.

More troubling is the stagnation of wages. While it will be very helpful that 288,000 people will be earning and spending their spanking new paychecks, it is bothersome that essentially we in the U.S. have a labor surplus. One thing is certain, inflation will not be a factor in the Fed's base-line interest rate calculus any time soon.

The conventional thinking caused a minor sell-off in equities and a decline in the interest rate on the 10-year T bond.

Gold also "felt right" today. Many traders felt that it had been treated badly this week and saw a value opportunity to jump in and make some money.

The question is whether 1300 is a true resistance point... a topic best discussed under technical analysis below.  

As always, wishing you good trading,