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How the US Economic Outlook Impacts Gold

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US initial jobless claims the lowest since 1969

The US jobs data for February 2018 is slated to be released on March 9, 2018. The initial jobless claims data for the week ended February 24, 2018, came in at the lowest level since 1969. The seasonally adjusted claims came in at 210,000. The economists, polled by Reuters, were expecting claims of 226,000. 

A level below 300,000 is usually associated with a strong labor market. This is the 156th straight week that claims have remained below this threshold. The four-week moving average for the claims, which is considered a better measure as it smooths out the weekly volatility, also came in at its lowest level since 1969.

The last unemployment rate had come in at 4.1%, which is also a 17-year low. The US economy is near full employment. The tightening of the job market is pushing wages up, which is expected to support higher inflation going forward.

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The Conference Board’s LEI

The Conference Board LEI (Leading Economic Index) is one of the most-followed forward economic indicators in the financial world. The LEI is a monthly economic series that tracks any changes in the US business cycle. 

The latest LEI reading was released on February 22. According to the report, the LEI for January was reported at 108.1, which marks an improvement of 1.0% from the revised December index reading of 107.0.

This is the fourth consecutive monthly gain for the index, and this month’s gains were driven by improvements in the number of building permits for housing (XLRE) and financial (XLF) subcomponents.

Economic data and gold

Most of the recent data point to a strong US economic outlook. However, market participants have started worrying about the US economy becoming overheated. 

Increased expectations surrounding inflation should support a more aggressive stance from the Fed on its rate hike path, with one hike expected in March 2018. Higher interest rates are usually negative for gold (GLD) (SGOL) investment, as gold is not an interest-bearing asset.

Gold and stocks such as Pan American Silver (PAAS), B2Gold (BTG), Agnico Eagle Mines (AEM), and Yamana Gold (AUY) could be driven by economic data from the United States and the rest of the world going forward. PAAS, BTG, AEM, and AUY make up 9.8% of the VanEck Vectors Gold Miners ETF (GDX).

Apart from full employment, inflation is one the Fed’s main objectives. In the next article, we’ll discuss the outlook for US inflation in this context.

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