FXEMPIRE
All
Ad
Corona Virus
Stay Safe, FollowGuidance
World
44,787,418Confirmed
1,179,410Deaths
32,740,775Recovered
Fetching Location Data…
Advertisement
Advertisement
Arkadiusz Sieroń
Gold

The U.S. labor market improved in August, although headlines paint too rosy a picture. What does it all mean for the gold market?

Great news for the U.S. labor market: according to the BLS, the American economy regained 1.4 million jobs, while the unemployment rate fell below 10 percent for the first time in the pandemic era! To be more precise, the unemployment rate declined from 10.2 percent in July to 8.4 percent in August, as the chart below shows.

Importantly, the fall in the unemployment rate was bigger than expected – and it was accompanied by an increase in the labor-force participation rate, from 61.4 to 61.7 percent, which makes the decline in the unemployment rate even better.

The headline numbers are, thus, negative for the gold market. They reflect improvements in the labor market and the continued recovery of the economic activity from the coronavirus crisis and the Great Lockdown.

However, when we dig deeper, we would see less rosy picture. First of all, as one can see in the chart below, the pace of the U.S. employment growth has seriously slowed down from gains of 2.7 million, 4.8 million, and 1.8 million in May, June and July, respectively. It indicates that the nonfarm payrolls are clearly losing momentum.

Moreover, the 238,000 jobs were created only temporarily due to the Census 2020. And we cannot forget that the unemployment rate remains relatively high, especially when compared with a 3.5 percent rate before the outbreak of the epidemic. So, there is still a long way to get back to the pre-COVID levels and trajectory.

Another example showing that investors should always take headline numbers with a pinch of salt, are the initial jobless claims. They fell sharply by 130,000 to a seasonally adjusted 881,000 in the last week of August (see the chart below), but the decrease was caused by a methodological change in how the data is adjusted to account for seasonal swings in employment.

Implications for Gold

What does it all imply for the gold market? Well, the decline in the unemployment rate is negative for gold prices, as it could restore the confidence in the vigorous economic rebound. Indeed, the price of gold declined initially in response to the release of the Employment Situation Report.

However, the fact that the U.S. job growth slowed further in August is worrisome. The slowdown shows the fragility of the current economic recovery and puts its stability into question without the new government’s financial stimulus package. The uncertainty about the pandemic and economic recovery should maintain the demand for gold as a safe-haven asset and a portfolio diversifier.

So, in the short-term, the correction in the gold market could continue. The inability of gold to rally after the Fed announced its dovish change in the inflation-targeting regime looks bearish and may indicate that gold has already priced in a more inflationary Fed. The improved epidemiological situation and economic recovery could also add some downward pressure on the gold prices.

However, the fundamental outlook for gold remains bullish. The monetary policy remains easy, while the real interest rates will remain ultra low or even negative for years. The fiscal deficits and public debts are ballooning. In such a macroeconomic environment, gold should shine in the long-run.

And do not underestimate the power of the dovish side! After all, last week, the Fed acknowledged that the Philips curve is dead, so it will permit the economy to expand and inflation to increase to a higher level without the need to hike interest rates. In other words, the Fed promised to keep the federal funds rate near zero for a few more years without worrying about inflation. As it has become even clearer that the Fed is more concerned about the weak economy than inflation, we are even more certain that the real interest rates will remain at ultra low levels for years, which will continue to push investors toward gold.

If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!

For a look at all of today’s economic events, check out our economic calendar.

Arkadiusz Sieron, PhD
Sunshine Profits: Analysis. Care. Profits.

 

Advertisement
Don't miss a thing!
Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Trade With A Regulated Broker

  • Your capital is at risk
IMPORTANT DISCLAIMERS
The content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party's services, and does not assume responsibility for your use of any such third party's website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.
RISK DISCLAIMER
This website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.
FOLLOW US