The markets opened to a Friday morning surprise that may have made many traders wish they'd stayed in bed and called it an early weekend. This month's non-farm payrolls report was expected to be upbeat (generally taken to be 200,000 jobs added or more), but it turned out that employers only added 142,000 jobs to their payrolls in September—a huge miss. This sent the dollar tumbling about 0.8% to 95.4 on the dollar index while gold was the beneficiary, gaining more than $25 per ounce in early trading to nearly $1,142/oz. Before Friday morning's rally, the gold price had been on pace for its worst monthly performance since March.
Silver also surged more than 2.5% to cross back above the $15/oz mark. Platinum and palladium added $6 and $20 per oz, respectively.
Recent Slump for Gold
The precious metals as a group have been pulled down throughout the year due to the widespread rout in the commodities sector in general. Gold and silver, however, haven't had quite as rough a road as their Platinum Group Metal cousins, platinum and palladium. For perspective, the two metals started the year around $1,250/oz and $800/oz, respectively; now, platinum is straddling the line at $900/oz while palladium is again approaching $700/oz after sinking as low as $535/oz at one point in August.
The losses haven't been nearly as steep for gold and silver due in no small part to their appeal as jewelry and investments. Platinum and palladium, though certainly precious metals that enjoy some investment demand, follow much more closely with the prices of industrial metals thanks to their use in automobile manufacturing. These two metals may be poised to rebound, however.
Interest Rate Implications
Many will cite the poor jobs report as yet another reason for the Federal Reserve, and any other global central bank for that matter, to hold on off on its declared intention of raising interest rates sometime in the vaguely near future. The impact felt from the downbeat jobs numbers not only has to do with the low figures, but is also because they were so far removed from what the markets expected. The Fed is at least as much concerned with the sentiment regarding the economy (and the resultant market behavior) as it is about its task of managing monetary policy.
In this regard, the Fed need only look to the Treasury market to see that traders and investors are not exactly sold on the notion of the central bank hiking rates at this month's FOMC meeting, the last until mid-December. Demand for T-notes has spiked, sending yields progressively lower during the week, from 2.15% to 2.02%, and then again lower on Friday to as low as 1.93%.
If people are buying up Treasurys, then it reflects their expectations that the Fed isn't going to move within the very near future if only because it doesn't make much sense to buy a bond at its current yield if interest rates everywhere are on the cusp of going up; why not wait a few weeks and get what will surely be a higher yield? This obviously can't explain each and every single Treasury transaction, but a sustained wave of increased demand for Treasurys like we've seen doesn't exactly square with imminently rising rates. While the immediate effects on the precious metals from a rate hike remain unclear, the markets are definitely signaling some safe haven demand exists at the moment.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.