This morning's non-farm payrolls came in at 252,000 jobs added in December, above analysts' expectations of about 240,000 and the 11th consecutive month with at least 200,000 new jobs. That's the best winning streak for payrolls since 1994-1995. The Labor Department also revised the last two months' jobs reports upward, making 2014 the best performing year for the U.S. labor market since 1999. U3 unemployment (the headline number) dropped to 5.6%, but the more telling U6 unemployment rate (which doesn't exclude people no longer looking for a job) also fell 20 basis points to 11.2%. Even with clear indications that the U.S. economy is not only outpacing its peers, but largely insulated from the fragile world economy, gold and silver were both up in early trading on Friday.
Yesterday in the Markets
Thursday was a great day for U.S. stocks, as the Dow Jones rose over 300 points to erase its dramatic losses to begin 2015. The major U.S. indices are now essentially right back where they were to close 2014, and may have room to run before the Fed decides to raise the federal funds rate. WTI crude actually added about 0.55% while Brent crude fell slightly, closing about 10 cents lower. The two oil benchmarks have been inching closer to one another as depressed energy demand in Europe is dragging Brent down further than its West Texas counterpart. In spite of the abundant signs that the U.S. economy has been heating up, and the continued rise of the dollar due to cheap oil prices, the precious metals managed to hold their positions on Thursday. Treasuries finally eased after 8 consecutive sessions of declining yields.
Factors Affecting Gold Today
Not only were the non-farm payrolls impressive, but with unemployment data continuing to shore up, the Fed will have to consider amending their "not-before-April" forward guidance for when rates will go up. The labor market is rapidly approaching the Fed's 5.2%-5.5% target for "full employment," so it would appear that low inflation is the only thing holding the central bank back from taking the first step toward normalizing monetary policy. While the Fed will likely stick to its guns and hold off on making any policy changes before Wall Street expects them, the growing murmurs about impending rate hikes could be enough to give a boost to gold.
The one glaring weakness in the employment report was the drop in wages. Average earnings fell by 0.2% in December after rising in November; last month's numbers were also revised down, however, from 0.4% to just 0.2%. Low wage growth is yet another sign that inflation is not accelerating, which could make the Fed gun-shy about roiling the stock markets with a rate hike before its projected date. U.S. equities traders basically ignored the positive headline data and seized upon the poor wage numbers, as all three U.S. indices plunged into the red on Friday morning. Though a strong showing in the economy is overall bullish for equities in the near term, its influence in forcing the Fed's hand is likely to be good for gold and precious metals as we get closer to Spring.
Meanwhile, the horrific attacks on Charlie Hebdo in France have not only sparked fresh cultural tensions in Europe, but have also placed a microscope on the economic difficulties that may have contributing to the mood of anger and discontent that played into the acts of terror themselves. It is true that whenever economic conditions are unfavorable for long enough, political and social dissidence becomes a more pressing problem--or, at least, the public becomes more susceptible to these strains of extremism and malcontent. Europe has certainly been mired in economic turmoil for a fairly prolonged period of time, and the longer the situation remains dismal, the greater the chance for violence and unrest, whatever the reason. Simply put, people grow unhappy rather quickly when their economy is struggling.
These developments in Europe are simultaneously taking place in Japan and China: in line with the ongoing slowdown of China's manufacturing, its Producers Price Index (PPI) has fallen each of the last 34 months, and is down an incredible 3.3% year-over-year. Such developments are probably good for the gold, and with the vigor of the dollar, could mean bargain buys of the yellow metal for those using USD.
Monday will be a fairly quiet day for economic news: in lieu of new data, investors will try and read the tea leaves when Atlanta Fed President Dennis Lockhart discusses monetary policy in Atlanta around noon.
Don't forget that Gainesville Coins will be at the four booths between 513-612 at the 60th annual FUN Show in Orlando this weekend! Come visit us and enjoy the excitement of the year's first big coin show! The perfect outing for the entire family!