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What the US Employment Situation Indicates for Gold

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US job growth overwhelms

The US jobs report showed 211,000 job additions in April 2017, much higher than the March 2017 addition of 79,000 jobs. The job gains in April also surpassed economists’ expectation of 190,000 gains. The major gains in April came from the leisure and hospitality industry, which registered 55,000 gains. Education and health services and financial activities were other major contributors.

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Unemployment and wage growth

The unemployment rate fell to 4.4% from 4.5%. Economists were expecting the rate to climb to 4.6% in April. This rate stands at the lowest level seen in the last ten years. Achieving a full employment level supports the Fed’s monetary tightening plan.

Wages rose 2.5% between April 2016 and April 2017, the weakest rise since August 2016. Wages grew 2.6% in March 2017. Overall, the US jobs report for April was strong and it supports the possibility of the Fed hiking interest rates.

Impact on gold

There is still one more month of data to consider before the Fed meets in June. However, overall, the positive trend in the US jobs market should support higher rates in the future, which will most likely be negative for gold (GLD) as an investment. 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.

In addition to full employment, inflation is one the Fed’s objectives. In the next part, we’ll discuss the outlook for US inflation.

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