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Why Downbeat March Jobs Report Might Not Be Enough to Move Gold

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US job growth data disappoints

The Bureau of Labor Statistics released US jobs data for March 2018 on April 6. The job growth was weaker than expected. The US added 103,000 jobs in March as compared to upwardly revised 326,000 jobs the previous month. The economists were expecting an addition of 185,000 jobs in March, as per Bloomberg. While a slowdown was expected in March due to February’s surge underpinned by hiring due to unseasonably warm weather, the decline was more than what the market expected. The unemployment rate has remained at 4.1% for six months. The Fed is forecasting a rate of 3.8% by the end of this year.

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The year-over-year wage growth increased to 2.7% in March compared to 2.6% the previous month. While this is comparatively strong, economists are still puzzled that wage growth hasn’t picked up more, especially given the low unemployment. When unemployment declines, wages should ideally go up. Most market participants are still hopeful that wages will eventually catch up to the firming employment market.

US job data impacting these variables

While March’s numbers were disappointing, the employment situation remains strong and represents the longest streak of monthly job gains on record. The jobs report from the Bureau of Labor Statistics is very closely watched mainly due to the repercussions that jobs, wages, and unemployment data can have on the US dollar, inflation, and interest rates. Markets received a negative shock after the decline in jobs added, but this report was overlooked as investors focused on the trade war developments, which led to a 2% decline in equity indexes on that day.

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) investments, 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 VanEck 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.

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