Labor Issues

The euro is down about 0.45% against the U.S. dollar and gold is suffering at the hands of that dollar strength. The euro, though which has recovered a tiny amount, dropped below 1.10 for the first time since 2003. That is a particularly hard climate for gold to prosper in.

Europe’s equities attracted significant investment action today. The DAX was up a full percent. The FTSE and CAC were also up, though not by quite that number. Europe is expecting big things out of its quantitative easing program, bond purchases for which are scheduled to begin on Monday. Europe’s central bank also left in place its rock-bottom low interest raes.

This helped U.S. equities to a degree, but the DOW – and to a lesser extent the S&P 500 – were hindered by a 1.3% drop in oil prices. We’re beginning to be concerned about the ripple effect of low oil prices in the American economy, especially manufacturing and transport. (Not to mention ancillary businesses, and support services that surround oil production.)

Luckily for gold, it was immune from the crude drop as an outside bearish influence.

In regular trading gold is actually up. With the dollar’s rise factored in, it is off only marginally.

For the moment, most markets in the U.S. are frozen by the imminent release of labor data tomorrow.

Last week we said that probably the worst fundamentals scenario for gold would be slightly soft data on jobs. That would confuse people in many quarters. Economists are predicting a rise of 240,00 new jobs. We’re thinking 225,000 is about right because of the winter suppression of retail, shipping and food services. People stay home more when it's cold. Energy sector layoffs are also a consideration. New jobless claims spiked in the last two weeks of February.

However, those circumstances are temporal, rather than structural.

“We suspect the pattern reflects the weather rather than fundamental deterioration,” Jim O’Sullivan, chief U.S. economist for High Frequency Economics, said in a note to clients. “That said, we will, of course, be on watch for the possibility that the rise in the last two weeks marks a change in the trend.”

The talk about employment levels and job-creation growth is germane to gold traders because the unemployment rate is moving in on 5%. Unless a new handbook has been written, it is at about that level we usually see wage pressure build. That, in turn, creates inflation. Generally.

So, as we approach that 5% number in the U.S., we are more likely to see an interest rate increase from the Fed. Additionally, the Fed must anticipate such numbers so inflation embers don’t burst into flame.

Let’s see what happens tomorrow morning.  

Wishing you as always, good trading,