What Investors Should Know about Gold's Key Drivers

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Part 2
What Investors Should Know about Gold's Key Drivers PART 2 OF 12

Here’s How US Economic Growth Could Impact Gold Prices

US job growth in October

While hurricanes negatively impacted the US job market in September, the job market accelerated in October 2017. Employers added 261,000 jobs in October, which is the highest in more than a year. This rebound was expected after the hurricane impact in September. The leisure and hospitality sector, which lost 102,000 jobs in September, gained back 106,000 jobs in October. The US’s unemployment rate also fell to 4.1%, which is its lowest level since 2000. Annual wage growth, however, disappointed. Average hourly earnings rose just 2.4% year-over-year, which was the smallest increase since February 2016.

Here’s How US Economic Growth Could Impact Gold Prices

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US economic growth

The US’s gross domestic product rose 3.0% in the third quarter of 2017 after expanding 3.1% in the first quarter. The GDP in 3Q17 is higher than the economists’ expected 2.5% rise. It is the first time in the last three years that growth has hit at least 3.0% for two consecutive quarters. What’s even more interesting is that this growth during the quarter is despite the impact of hurricanes Harvey and Irma.

US consumer confidence

The US consumer confidence also rose more than expected in October 2017. Coming in at 125.9, the consumer confidence hit its highest level in almost 17 years. The high level of confidence reiterates consumers’ view of current economic conditions and their expectations for the next six months.

Overall, the US economy has been doing well, which will keep the Fed on its rate hike path with one hike expected in December 2017. Higher interest rates are usually negative for gold (GLD) (SGOL) as an investment, as gold is not an interest-bearing investment.

Gold and stocks such as Pan American Silver (PAAS), Coeur Mining (CDE), Agnico Eagle Mines (AEM), and Yamana Gold (AUY) could be driven by the economic data from the US and the rest of the world going forward.

Apart from full employment, increasing inflation is one the Fed’s main objectives. In the next part, we’ll discuss the outlook for US inflation.


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