Commentary for Monday, April 6, 2015 – Gold closed up $17.70 on the Comex today at $1218.60. Gold traded sharply higher after the Easter holiday reacting to information released on Good Friday (even though the markets were closed) which suggests we might be in trouble with job formation.
There were other factors which also helped gold move higher. The Dollar Index was lower on the week (- 0.82%) and crude oil prices moved up $2.50 ($52.00) on Middle East tension between Iran and Yemen.
And today’s close is important ($1218.60) because we are now trading above the 50 Day Moving Average ($1209.00) and the 100 Day Moving Average ($1211.00) – a move above the 200 Day Moving Average ($1233.00) would indicate we are off to the races once again.
The poor jobs number suggests that our economy is not robust and leads to the notion that the Federal Reserve will not raise interest rates anytime soon – so gold bulls were encouraged. But like everything relating to the Fed and gold the water is not that clear. A bust on the just released jobs number might mean a typical anomaly when viewed within a typical 12 month period. Or economists might blow off the “miss” because the dollar is so strong or the weather is so bad.
This from Lucia Mutikani (Reuters) – US Job Gains Weakest Since 2013; Unemployment Rate Steady – Only 126,000 jobs added in March – (Reuters) – U.S. employers added the fewest number of jobs in more than a year in March, which could heighten concerns over the recent slowdown in economic growth and delay an anticipated interest rate increase by the Federal Reserve.
Nonfarm payrolls rose 126,000 last month, the smallest gain since December 2013, the Labor Department said on Friday. The goods producing sector, which had been hurt by a strong dollar and lower crude oil prices, shed 13,000 jobs in March – the largest drop since July 2013.
The unemployment rate held at a more than 6-1/2-year low of 5.5 percent because people dropped out of the labor force.
“There’s no question that the economy is showing the negative effects of the stronger dollar and the collapse in oil prices. Corporate profits have come under pressure, and hiring has been adjusted in response,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors in Kalamazoo, Michigan.
Economists polled by Reuters had forecast payrolls increasing 245,000 last month and the unemployment rate remaining at 5.5 percent. Prices for U.S. government debt rose as investors further pushed back their expectations for a Fed rate hike this year. The U.S. dollar fell against a basket of currencies and U.S. stock index futures slipped.
The U.S. central bank has appeared keen to raise its key overnight lending rate, which it has kept near zero since December 2008. But the economy’s recent softness has led investors to push back bets on the rate lift-off. Some believe the Fed could even wait until 2016.
March’s tepid increase in payrolls ended 12 straight months of job gains above 200,000, which had been the longest streak since 1994. In addition, data for January and February was revised to show 69,000 fewer jobs created than previously reported, giving the report an even weaker tone.
The paltry job gains could fan fears that the recent weakness in economic activity could be more fundamental rather than due to transitory factors. Until last month, the labor market had largely shrugged off a harsh winter, a buoyant dollar, weaker global demand and a now-resolved labor dispute at West Coast ports, which have combined to undermine economic activity in the first quarter. Growth braked sharply over the past three months. Gross domestic product estimates for the first quarter are as low as a 0.6 percent annual pace, but the slowdown is expected to be temporary.
Wages Up – There was some good news in the employment report. Average hourly earnings, which are being closely watched for clues on the timing of a Fed rate hike, increased seven cents, lifting the year-on-year gain to 2.1 percent.
With Wal-Mart and McDonald’s announcing pay increases for their hourly workers, wage growth could gain some traction in the months ahead. Other companies, including TJX Cos Inc and health insurer Aetna, also have announced wage increases.
While the labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, slipped one-tenth of a percentage point to 62.7 percent last month, other measures on the Fed’s so-called dashboard continued to improve.
A broad measure of joblessness that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment fell to a more than 6-1/2-year low of 10.9 percent from 11 percent in February.
The number of Americans unemployed for 27 weeks or longer also declined further. Some economists believe that bad weather could have hampered job growth last month, citing a decline in construction payrolls and a sharp deceleration in leisure and hospitality employment gains.
The average work week fell to 34.5 hours last month from 34.6 in February.
“It is very likely that weather has been part of the story, but the latest numbers bring payrolls more in line with other data that signals some underlying slowing,” said Alan Ruskin, global head of G10 FX strategy at Deutsche Bank in New York.
Private payrolls increased 129,000 last month, slowing from 264,000 in February. Employment growth was held back by a decline in the goods producing sector payrolls. Construction employment fell 1,000. Manufacturing, which has been hit by the strong dollar and softer global demand, saw payrolls fall by 1,000. Government employment fell 3,000. The mining sector also saw more job losses last month, with payrolls falling 11,000. That reflected ongoing losses in oil and gas extraction, which has taken a hit from lower crude oil prices.
Silver closed up $0.42 at $17.10 in quiet trading. Typical of an after holiday return to the trading floor the action was subdued and I believe European markets were closed today.
Platinum closed up $26.00 at $1180.00 and palladium was higher by $22.00 at $768.00. The strong vehicle sales (17.2 million units) was a surprise – which helped the platinum group metals. And platinum is still trading at $38.00 less than gold – this discount should always be considered – especially if trading gold bullion for platinum bullion. The US Mint is still not producing the US Platinum Eagle which is a wonderment to me.
Finally the dreaded April 15 th tax deadline is approaching – this means you could see some tax selling in the precious metals or at least book squaring .
This from Kira Brecht (Kitco) – Easy Fed Policy Isn’t the Only Game in Town for Gold – U.S. monetary policy rates hikes are coming. Whether it turns out to be one rate or two rate hikes in 2015 the Federal Reserve will feel pressure to deliver on its widely broadcast monetary policy changes this year.
For long term gold investors the timing of the Fed’s first rate hike doesn’t really matter. It’s coming. But, easy Fed policy isn’t the only bullish game in town for gold. There is a lot of bullish fodder floating around the gold markets these days that will have longer term implications for gold.
Are Gold Reserves Running Out? Notably, there is the widely talked about Goldman Sachs report in which European metals and mining analyst Eugene King estimated there is only 20 years of known mineable gold reserves remaining.
Huge Asian Demand. Then there was the recent Australian ANZ research report which forecast a run to new all-time highs in gold in the years ahead driven in large part by huge demand from Chinese consumers, along with rising demand from central banks and institutional managers looking for safety in an uncertain world.
Individuals Buying Gold. The U.S. Mint announced a huge 151.4% jump in American Gold Eagle sales during the month of March over the previous month. Sales totaled 46,500 ounces in March up from 18,500 ounces in February.
The US Stock Bull Is Six Years Old. Last but not least is the age of the current bull market in U.S. stocks. The S&P 500 has been climbing higher since the March 2009 low. For much of that time, gold has rallied alongside stocks. Gold was driven higher by a multitude of factors including safe-haven buying during the global financial crisis of 2008, massive quantitative easing policies by the Federal Reserve which jacked up the Fed’s balance sheet from $850 billion prior to the crisis to a record size over $4 trillion.
The unprecedented nature of the global financial crisis which took the entire financial system to the brink, along with the subsequent extraordinary actions by the Federal Reserve and other global central bankers to flood the system with easy money policies, broke a traditional relationship between gold and stocks.
Historically – the 1970’s is an example when investors preferred commodities or hard assets over stocks and bonds or paper assets—the typical relationship is for gold to trend in the opposite direction from stocks as investors seek alternative assets and safe havens during major bear markets.
The unprecedented nature of the 2008-2009 crisis and its aftermath saw the traditional gold-stock relationship unhinge. But, what’s next? The current run in U.S. stocks is getting old. The Fed is going to begin pulling away the punch bowl at some point this year. If the stock bull turns into a stock bear, investors will gravitate toward gold as a traditional safe-haven and alternative hard asset as paper assets decline in value.
With concerns about the amount of gold reserves, expectations for huge Asian demand around the corner and a U.S. stock market that is vulnerable for a turn, gold could be looking relatively cheap now compared to what could lie ahead.
Gold has tumbled from its highs in recent years, but physical buyers continue to support gold on dips. Good demand for gold has been seen in the $1,130-$1,140 per ounce zone.
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