Gold Rises In Face Of Impressive Jobs Report

July 8, 2016 - 5:08pm

 by Gary Wagner

The big news today in trading, of course, is the jobs report from the U.S. Department of Labor.

June's huge jobs number beat predictions with a stick. It was surprising, given May's disappointing data. The U.S. economy added 287,000 non-farm payrolls last month, 112K more than estimates.

The reaction is very telling. First, we should note that the average for the last three months is 147,00. Nothing to sneeze at, but nothing to call out the oom-pah band for. It is exactly that sort of splitting of an economic hair that pleased equities traders.

The Fed looks to be secure in a straitjacket at least for the July FOMC meeting. The jobs number simply isn’t good enough to raise the interest rate. If anything, the average shows some weakness even as the U.S. approaches full employment.

The labor force participation rate – the percentage of Americans at work or actively looking for employment – increased to 62% while hourly earnings increased one-tenth of one percent.

One observer called the average jobs growth a “Goldilocks number.” It’s not too hot, not too cold, but just right.

The Dow, S&P 500 and NASDAQ all rose – 1.40%, 1.50% and 1.60%., respectively. NASDAQ, which has been languishing lately, is up the most, mostly on consumer spending.

Gold tells an intriguing tale today. It cratered right after the jobs numbers were released but struggled back to even as the day wore on. At close it was up about $5 per ounce on speculative buying. Silver had slipped a bit earlier in the week but today is up a very impressive 2.90%.

Bond yields across the gamut are down while face prices are unchanged to slightly up. Of note: The Japanese benchmark 10-year is right at the -0.30% mark. (Yes, negative.) 

Currencies are stable, with the dollar bouncing around but in a very tight range against other major currencies. It felt as if everyone on the currency desks split early for another summer weekend.

David Kelly, chief global strategist at JPMorgan Asset Management, said he was unfazed by the jobs slowdown as measured in average over the last three months. He put it into amusing terms.

"The key thing here is this economy is a healthy tortoise. It's not a sickly hare," Kelly said.

"If you've got 1.5% growth in the long run, doing 150,000 jobs [per month] is actually a little bit above your normal capacity. I don't think there's any slack left in this labor market at all," he said.

If Kelly is right, we should see wage pressure shortly. Wage pressure leads to price inflation and price inflation leads to Fed action.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

Gold Forecast: Proper Action
We will enter the weekend flat with no active trades.
 
Last Friday we sent out a special trade alert recommending the initiation of a long position in gold. Traders taking that call bought gold at 1338 (basis August Comex contract).
 
Yesterday we are issued a TRADE ALERT to either
1. Raise your stop to below 1352 (for a $14.00 profit or $1400 per contract) or
2. Take price order to the market (for a $24.00 profit or $2400 per contract)
 
Gold Market Forecast

What in incredible roller coaster ride of a day for precious metals traders. Immediately following the release of last month's jobs report, which came in as better than expected, we witnessed precious metals succumb to great selling pressure, with gold trading to an intraday low of 1332 per ounce.

This selling pressure was to be extremely short-lived, with a tremendous recovery in which we saw lost ground made up, and precious metals as a complex close in positive territory on the day.

Most interesting is that we had a risk-on day with US equities flirting with historical highs in the Standard & Poor's 500, and yet had a safe-haven play with precious metals closing moderately higher after trading under tremendous pressure at the onset of today's trading.

Gold has still not broken above 1371 on a closing basis, the area we have been looking at as a potential point for resistance. That being said, next week will give us some key indications as to our next move. Should the market simply fly through 1371 and move to higher ground we would expect gold prices to trade as high as 1400 per ounce.

Should we see some softening in gold prices at the beginning of the week we would then look for a small consolidation or correction before returning to rally mode.

Trending Markets Forecast

Rarely do we see markets trade in such a manner. With a solid jobs report it was no surprise to see US equities trade higher on the day.

However, it was interesting to see the dynamics of today's trading range and the fact that the Standard & Poor's 500 closed within just a few points of its all-time historical high.

At this point, US equities have gained back all of the losses incurred when the United Kingdom referendum to leave the European Union was approved. So, roughly $2 trillion which eroded in real value has now gone back into the pockets of investors and traders.

There is still much uncertainty as to what will happen in the European Union with the Brexit vote. However, one thing is absolutely clear and that is that given all of the circumstances globally, US equities are still the most desired of any of the risk-on income investments. We also believe that the central banks will continue to add stimulus in Europe, with our Federal Reserve keeping interest rates steady with no imminent rate increases.