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As US Job Growth Slows, Gold Begins Another Climb

Anuradha Garg - Author
By

Aug. 18 2020, Updated 4:37 a.m. ET

US job growth underwhelms

The US added 138,000 jobs in May 2017, after adding 174,000 jobs in April. Investors should note that the number for April was revised downward from 211,000 earlier. The job additions number for March was also downwardly revised. Economists were expecting job adds to total 180,000 in May.

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Unemployment and wage growth

The unemployment rate fell to 4.3% in May from 4.4% in April—the lowest level in the last 16 years. Economists were expecting the rate to remain the same at 4.4% for May. Remember, achieving a full employment level supports the Fed’s monetary tightening plan.

Hourly wages rose 2.5% during the past 12 months (ending May 2017). Wages grew 2.5% in the 12 months ending April 2017 as well. While the job additions number disappointed in May, the market doesn’t seem to see this as a big enough factor to impact the Fed’s rate hike decision in its June 13–14 meeting.

Impact on gold

The unemployment rate and the wage growth data have apparently the market confidence in the Fed’s decision to increase the federal funds interest rate during its June meeting. Weaker job addition data going forward, however, may have a bearing on the future of the Fed’s rate hike decisions.

A slower-than-expected rate hike trajectory would be positive for gold (GLD) as an investment. Along with miners like Wheaton (SLW), Barrick Gold (ABX), Franco-Nevada (FNV), and Royal Gold (RGLD), gold will be driven by economic data from the US and the rest of the world. Notably, funds such as the VanEck Vectors Gold Miners ETF (GDX) invest in these stocks. ABX, for example, accounts for 5.5% of GDX’s holdings.

But inflation is another key Fed objective. In the next part, we’ll discuss the outlook for US inflation.

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