The fundamental puzzler for gold this week is whether the drastic drop in jobs creation is the start of a pattern or an anomaly.
President of the New York Fed William Dudley found himself in the quandary, as do many other sensible analysts. But equities around the world shrugged off U.S. growth problems as late-to-work traders bid up prices on Wall Street. The Dow was up by as much as 160 points but has since backed off those highs.
Gold and silver have also backed off their highs for the day.
A weaker dollar contributed to the stocks’ rally, something equities investors like to see because it signals higher oil prices and more competitiveness for American goods and services abroad.
The timing of the Fed's first hike in its benchmark interest rate since 2006 will depend on "how the economic outlook evolves," Dudley said in a speech at the Newark, New Jersey, Performing Arts Center.
Should the labor market continue to improve and inflation begin to pick up, as Dudley expects, "then it would be appropriate to begin to normalize interest rates."
He added: "It will be important to monitor developments to determine whether the softness in the March labor market report… foreshadows a more substantial slowing in the labor market than I currently anticipate."
According to the most important Fed official (besides Chairwoman Yellen), recent "downside surprises" in key economic data reflect "temporary factors to a significant degree."
His researchers found that the effects of historic amounts of snow and severe winter weather in the Northeast and Midwest were 20% to 25% were much worse than the five-year average.
"Such large deviations appear to have meaningful negative impacts on a number of economic indicators," Dudley said.
He believes the Fed, once it starts raising the benchmark federal funds rate from its current near-zero level, will move very cautiously because "headwinds in the aftermath of the financial crisis are still in evidence, particularly the diminished availability and tougher terms for residential mortgage credit.”
In a number worth remembering, Dudley said he sees the Fed rate going to 3.5% at some point. One force that 3.5% would be indicative of is very strong inflation, which can only come once “full employment” and higher wages appear in the U.S. economy. Still plenty of time to make a sandwich before that comes about.
Wishing you as always, good trading,