Unquestionably one of the most important economic reports each month is the U.S. Labor Department’s jobs report (non-farm payroll). Set to be released tomorrow, traders and market participants are awaiting the numbers following a dismal ADP private sector jobs report that was released yesterday. Although economists had forecasted 175,000 private sector jobs created last month, the actual number was only a fraction of the forecast.
It was revealed that only a mere 27,000 new private sector jobs were added in May. The number released from ADP yesterday were the lowest numbers to in nine years. Considering that April’s revised numbers showed gains of 271,000, yesterday’s report shows an abrupt and sizable contraction in new private sector jobs created.
According to CNBC, Wednesday’s numbers may have been overstating economic weakness, just as it has overstated strength in the job market in April. The question now becomes will tomorrow’s report reveal a similar contraction in non-farm payroll additions for May. A weak jobs report tomorrow would suggest the rate cut suggested by Chairman Jerome Powell on Tuesday, and James Bullard, President of the St. Louis Federal Reserve Bank on Monday might be announced at the conclusion of the July FOMC meeting.
The possibility of a rate cut by the Federal Reserve has resulted in both US equities and gold prices running in tandem all week as both asset classes gained value. Typically, there is an inverse relationship between equities which are a risk on asset, and gold which is a safe haven asset. The exception to this rule is points in time when the Federal Reserve revises their monetary policy to be more accommodative. That is exactly what traders and market participants witnesses week with statements from the chairman and other Fed members.
As of 4:10 PM EDT gold futures basis the most active August contract is trading higher, as it has been throughout the entire week. The only difference in today’s move when compared to the daily gains created this week is that for the first time since May 30 gold has not closed with a higher high and a higher low when compared to the prior day. However, yesterday’s exaggerated high, which took gold futures to $1348.90 was an extremely difficult number to trade at or above. Yesterday’s intraday high came within a dollar of the highest price value gold has held this year.
Wishing you, as always, good trading,