How the US job market affects gold prices


Nov. 27 2019, Updated 7:06 p.m. ET

Why jobs data matter

The Fed assesses job data to determine whether the economy is strong enough to withstand higher interest rates.

In this part of our series on gold, we’ll explore the major labor market indicators that you should keep an eye on. With these in mind, you can form a view about the overall job market in the United States.

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Strong employment rates

Strong employment rates signal strong economic growth prospects, and recent US labor market data have been quite positive. The unemployment rate was at a six-year low in December when it came in at 5.6% compared to 5.8% in November. This is the lowest recorded value since June 2008. It peaked at 10% during the financial crisis.

Non-farm payroll above expectations

The non-farm payroll, or NFP, shows the number of jobs added or lost each month. The NFP increased by 252,000 in December as compared to 321,000 in November. The number for December was higher than the market expectation of 240,000 job additions.

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Wage growth weak

Wage growth is another crucial job market indicator. Average hourly earnings dropped by 0.2%, or 5 cents in December, after rising 0.4% month-over-month in November, the most since October 2011. Average earnings fell to $24.57 after having increased to $24.66 in November.

The above numbers show strong labor market prospects in the United States. Wage growth, however, remains weak. Wages need to improve for the overall US job market to recover. It’s important to watch these indicators, which are the most-watched by the Fed, along with inflation figures.

A strong labor market is positive for the economy. Accordingly, it’s usually negative for gold prices and ultimately, got gold-backed ETFs such as the SPDR Gold Trust (GLD). Other affected investments include Goldcorp (GG), Barrick Gold (ABX), Agnico-Eagle Mines (AEM), Yamana Gold (AUY), and ETFs that invest in these stocks, such as the VanEck Vectors Gold Miners Index (GDX). AEM and AUY make up 8.5% of GDX’s holdings.


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