What the US Employment Situation Says about Gold
US jobs report
The US jobs report showed 235,000 job additions in February 2017. This number was higher than the consensus estimate of 190,000 job additions. The number for January 2017 was revised upward to 238,000.
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The unemployment rate in February dipped to 4.7% from 4.8% in January. While this was a slight rise over the 4.6% recorded in November, it was still close to full employment.
Wages in February 2017 rose 2.8% from February 2016. While this is a strong number, it is slightly below the historical average. In February, average hourly wages of private sector production and non-supervisory employees rose 0.04 to $21.86.
Strong growth outlook
Overall, the US jobs report for February was quite strong. It could lead to the Fed hiking interest rates during its March 14–15 meeting—the odds of this are already very high.
The International Monetary Fund (or IMF) predicts that US economic growth will come in at 2.3% in 2017 and 2.5% in 2018, compared with the lackluster growth of 1.6% reported in 2016. The IMF is hopeful that President Donald Trump’s policies will help the United States achieve strong economic growth in 2017 and 2018.
According to IMF chief economist Maurice Obstfeld, “Markets have noted that the White House and Congress are in the hands of the same party for the first time in six years, and that change points to lower tax rates and possibly higher infrastructure and defense spending.”
Impact on gold
While a brighter outlook for the US economy is most likely negative for gold (GLD) as an investment, the full impact will only be visible once Trump’s pre-poll promises become reality. In the meantime, gold, along with stocks such as Barrick Gold (ABX), Franco-Nevada (FNV), Silver Wheaton (SLW), and Royal Gold (RGLD), will be driven by economic data from the United States and the rest of the world.
Funds such as the VanEck Vectors Gold Miners ETF (GDX) invest in these stocks. ABX accounts for 5.5% of GDX’s holdings.