Happy Friday, traders. At the time of writing, the gold market is heading towards a net-unchanged week in terms of pricing, despite some serious selling pressure at different points in the last few days that made real attempts at the lows of early March.
So, what kind of week has it been?
March Jobs Numbers Return to Trend
As analyzed by my colleague Ryan Page, this morning’s March Jobs Report was a largely positive one, with some shaky undertones mostly from an unexpected but small decrease in Avg. Hourly Earnings for the month. Gold-spot markets saw some choppy trading just before and just after the report’s release, but despite all the attention turned to the data—the recently volatile NFP in particular-- it turned out to be a fairly unchanged market followed by the beginning of today’s slow drift upwards and back above $1290/oz for gold. Coming in above expectations, the number of non-farm jobs added last month (196k) moderated back towards the 200k level, as was expected, following last month’s outlier 20k and the equally-surprising-but-directionally-opposite 300+ prints that in the December and January data. Also as predicted, the headline U3 unemployment rate remains at 3.8%.
March jobs report shows we've rebounded from what's now even more of an anomaly February. https://t.co/Qb7QfodO92
+ Vindicates Fed patience
+ Pushes back on market signs of recession
+ Wages still robust
- Manufacturing looking rough
- Retail hiring pauses alongside spending
— Katia Dmitrieva (@katiadmi) April 5, 2019
Backing further away for a broader perspective, while job growth is moving at a slower pace that 2018 so far, the overall trend is still a positive one. At the same time, a disappointment in already-subdued wage growth looks to cement the FOMC’s view of “muted inflation” for the time being.
An hour or so after the Jobs Report’s release, both gold prices and US Dollar markets were broadly unchanged after some whippy price action just on either side of 8:30am (EDT.) In the hours sense, the Greenback has remained relatively flat to it’s early morning levels while gold by the ounce has risen above $1290 once again. I suspect the lack of another blockbuster NFP number has left a number of investors more willing to maintain (or add-to) their gold positions against the dollar heading into next week.
Friday’s employment was preceded on Wednesday by the ADP measure of increases in private payrolls, which reported more than 40,000 fewer added jobs than expected. Viewed through the lens of today’s NFP data, we can be reminded again that the historical correlation between the two numbers is not directional, even though that had seemed the case over the last several months. That said, while the historically observed proportional correlation was not observed in the month of March—ADP expectations were off by 24%, while expected NFP was off by just under 9%-- I do think that relationship will hold over time.
Lastly, gold prices dropped to their lower points for the week following the weekly report of Initial Jobless Claims which came at a 49-year low of 202,000 claims.
We’ll be watching next week’s claims number to see if the new lows hold. Following the spike in the US Dollar and the heavy price pressure on gold Thursday morning, the yellow metal did seem to find a strong line of support around $1282/oz and rebounded with some velocity from that trough.
Mixed US Manufacturing, Orders Data
While the March employment data was the macroeconomic focus of the week, we also got the latest updates on a few other important measurements of the US economy. The ISM Manufacturing PMI for March arrived nearly a full point above the anticipated level (55.3 vs. 54.5) as published on Monday morning. Especially given the sharp drop in autumn of last year, I have a hard time categorizing that particular beat as strongly positive for the economy, but my view seems to be the minority as the release certainly applied some downward pressure to gold spot prices in a 10am (EDT) move that proved the deciding factor in a loser session for the yellow metal.
On Wednesday, as gold prices were trying to recover from some early-session selling, the services sector-focused version of ISM’s Purchasing Managers Index was a disappointment against expectations (56.1 vs. 58.0) to deliver the lowest marks in well over a year amid concerns about the availability of labor for the services sector as the overall labor market continues to tighten. Gold prices found a bit of a bid on the back of this news and took the opportunity to trade back above $1290/oz for much of the day.
In between the two vintages of the ISM data, Tuesday morning’s Durable Goods data was slightly ominous for the US economy as well. Month-over-month durable orders for February were below expectations across the board, with the largest disappointment coming from the headline number ex-defense spending (-1.9% vs. 0.1%.)
Things slow down again next week in terms of economic data, but Wednesday will require some attention paid to an update on US price inflation as well as the release (and parsing) of the minutes from the March FOMC meeting. With the quiet on the data calendar, expect increased scrutiny on messaging coming out of the US-China trade negotiations. Both sides seem to have positive things to say about the talks as we end the week—to varying degrees, depending on which delegation you want to take at their word— but I don’t see any strong market reaction to those reports. It seems we’re approaching a point from which analysts and investors will demand something more tangible to go on.
Gold prices have shown some resolve, to rebound from a challenge of $1285 and below and (for now) regain its footing above $1290. All things considered, that seems like a week just on the constructive side of neutral. The next test will be to see what the FOMC meeting minutes can illuminate for us in our effort to price gold value farther along the curve.
Until then, enjoy your weekend traders. I’ll see you back here on Monday.