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US Economic Outlook Remains Strong: Why Gold Might Still Rise

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US job growth data upbeat

The Bureau of Labor Statistics released the US jobs data for February 2018 on March 9. The data was strong. The US added 313,000 jobs in February—the most since July 2016. The job increases trumped economists’ estimates of 200,000. The gains were broad-based, which were spread across low-, middle-, and high-wage industries. The new jobs were mainly due to additions in retail, construction, manufacturing, and business services.

For the fifth straight month, the unemployment rate remained at 4.1%, which is a 17-year low.

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The wage gains, on the other hand, showed slight weakness. Average hourly wages were up 2.6% year-over-year (or YoY), against expectations of a 2.8% rise. On a monthly basis, wages were up just 0.1%. Even January’s reported wage rise of 2.9% was revised down to 2.8%. Investors might recall that January’s wage gain, which was the fastest pace since the recession, had instigated a sell-off in the equity market.

US job data impacting these variables

The jobs report from the Bureau of Labor Statistics is a very closely watched piece of data, mainly due to the repercussions jobs, wages, and unemployment data can have on the US dollar, inflation, and interest rates.

The upbeat jobs report supported the US dollar. The report also subdued expectations of runaway inflation pressures building in the US economy.

Economic data and gold

Overall, the US economy has been doing well. The Fed also thinks US economic growth is on a strong path. However, it’s still forecasting two more hikes in 2018. A more aggressive stance from the Fed could be detrimental for gold. 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. PAAS, BTG, AEM, and AUY make up 10.1% of the Van Eck Vectors Gold Miners ETF (GDX).

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

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