The Jobs Report Is Important Because of Fed Rate Thinking and its effect on Gold & Silver

The disappointing jobs report for April issued by the Labor Department today might be just the prescription for stabilizing markets across a broad spectrum.

That statement does not endorse any price-move direction in particular but merely indicates rough waters have become smoothed out to some extent. In fact, the CBOE’s VIX showed volatility decreased by more than 6.00% today.

So far, the main beneficiary of the mediocre news on employment has been gold, silver and the rest of the precious metals complex. Gold and silver each took a minor price shave from a rising U.S. dollar but regular traders saw the weak jobs report as an indication that interest rates would stay low for some time.

That would keep the precious metals investment relatively “cheaper” in comparison to holding bonds or even currencies. Gold was up around $11.00 per ounce and silver 11¢ per ounce. (At 3:30 PM in New York.)

The dollar was up against the euro and British pound. The yen gained strength as a haven play but surprisingly the Swiss franc fell significantly against the greenback.

U.S. bond yields were jumping all over the place, the day graph looking more like a section of a readout from a Richter machine rather than a reflection of one of the most sober investments the world offers. The 10-year bond yield rose .03, enough to call bond trading today “risk off.” (But that is because gold was so strong there wasn’t enough money to cover both gold and bonds.)

Before everyone starts weeping and gnashing their teeth about the employment report, average hourly wages on a yearly basis rose 2.5%. Think of it all this way: if more workers are hired, they will be paid less. For the nonce, new workers are not being hired. However, among those already working, pay is rising. We have to assume that there is a relatively finite amount of money to purchase labor and lately it has been going to higher wages rather than brand spanking new workers.

After precious metals, U.S. equities profited most from the labor news. The promise that the Fed will hold down interest rates at least through its next FOMC meeting seems to be like a juicy fruit in the eyes of investors in stocks. They didn’t take a big bite, but they did bite.

The Dow was up around 0.40% while the S&P 500 and NASDAQ were both up around 0.30%.

Europe was slightly mixed to higher, catching some of the interest-rate fairy dust from the mediocre labor data. Asia, however, moved to the downside as a group. Shanghai was off close to 3.00%.

West Texas Intermediate crude was up about 0.65% on the day but is ending the week with a loss, its first in four weeks. Oil promises to be volatile.

We’re a bit leery of first reactions in the markets after a dramatic data release. It’s worse when we go into a weekend on such news because people scramble to take or dump a position without much thought. Then everyone thinks about their actions or lack of action over the weekend and comes back on Monday fit to kill when the opening bell rings.

So, we would look for some retrenchment in precious metals. We would also look for a bit more uncertainty to be wrung out of earnings reports in equities.

However, in the near-middle term, we like equities and gold on a fundamental level. We are not enamored of oil because we feel the shakeout is not done.

Our advice, as it has been recently, is to hang on. Pick your spots on technical advice.

Wishing you as always, good trading,