It may seem hard to grasp how a weak jobs report could be good for gold prices but, in our topsy-turvy modern economy where events in far corners of the world can move our markets, few connections are rarely plainly obvious. All the same, it’s likely that April’s weak jobs report will be good news for gold prices and hard assets in general.
In case you missed it, the economy only created 160,000 jobs in April. There were many months in the past where that many new jobs in a month would have been cause for celebration but the people who study these things were expecting more and now everyone’s disappointed. The unemployment rate remained unchanged at five percent.
What’s funny is watching the wildly varying interpretation of the numbers. The New York Times called it “mildly disappointing” while BusinessInsider labeled it a “huge miss.” Stocks were lower but really no one's quite sure what to make of the numbers. One month isn’t enough to establish a trend.
Near Full Employment
Five percent unemployment is near what most economists consider full employment. As the available labor pool diminishes, it makes sense that hiring would slow down. There simply aren’t enough bodies to fill the jobs.
Jobs and Gold
The connection between jobs and gold is a little more convoluted but the gist of it is that a weak jobs report will prompt the Fed to put off any more interest rate hikes. The Fed is unemployment sensitive because jobs are one of the major priorities when the Fed considers an interest rate hike. A weak jobs report puts pressure on the Fed to keep interest rates low. Lower interest rates generally mean higher prices for gold, particularly at a time when gold traders are already figuring in a June bump in interest rates.
Not Completely Out Of The Question
There’s another jobs report before the Fed’s June meeting and serious blowout numbers in May could put an interest rate hike back on the table. But the numbers would have to beat expectations by a margin. Since we’re already nearly a third through May already, hiring is going to have to hurry to beat expectations in May.
Workers Feeling Good
The good news buried in the report says wages are up for the last two months in a row and workers are more likely to report general satisfaction with the labor market. Job flippers, people who quit their job before having another one lined up, still account for a significant percent of those out of work.
The main take-away from the job’s report is that 160,000 is a lot of jobs and represents 74 straight months of job gains. Wages are on the way up and a slowdown in hiring could prompt the Fed to hold the line on interest rate increases.