Will Strong June Nonfarm Payrolls Add To Golds Problems?
The US economy created 850,000 jobs in June. Get The Full Warren Buffett Series in PDF Get the entire 10-part series on Warren Buffett in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues  Q1 2021 hedge fund letters, conferences and more  850,000. This is how many jobs the US economy added in June. It means that the recent nonfarm payrolls came above the forecasts (economist predicted 700,000 created jobs) and are much higher than the 583,000 in May or the deeply disappointing 269,000 in April (see the chart below). Big gains occurred in sectors heavily hit previously by the pandemic, i.e., in leisure and hospitality (343,000), public and private education (269,000), professional and business services, retail trade, and other services. Warren Buffetts Greatest Lesson Of The Past Year I think it's fair to say that every single investor and business owner has learned a lot over the past 12 to 24 months. The coronavirus pandemic has completely disrupted the way we think and view businesses. Some companies have been driven out of business, while others have prospered in the new normal. Technology has Read More  Furthermore, employment in April and May was revised upward by 15,000. The acceleration in the pace of job increases is a good sign for the US post-pandemic economy and a bad development for the gold market. The only relief for gold could be the fact that the unemployment rate increased from 5.8% to 5.9%, as the chart above shows. This increase was a negative surprise, as economists forecasted a decline to 5.6%. This is also quite paradoxical unemployment remains relatively high despite a record number of job openings. Another potentially supportive factor for the gold market could be the 3.6% annual increase in wages, which means there will be higher wage inflation that could add to the consumer inflationary pressure. On the other hand, stronger wages could also support the Feds hawkish arguments for reducing quantitative easing and raising interest rates rather sooner than later. Implications for Gold  The newest employment situation report is negative for the yellow metal mainly because it strengthens the position of hawks within the FOMC. With strong labor market, there are higher chances that the Fed will normalize its monetary policy earlier. As a reminder, some of the central banks believe that the Fed has already reached its inflation targets. So, the labor market target is whats left. Strong job gains in June moved the US economy much closer to achieving this Feds goal and erasing worries that came in the aftermath of the extremely disappointing April reading. In other words, the strong employment report may add to the current weakness in gold in the medium-term. What the yellow metal needs right now is the flux of unambiguously poor economic data that could trigger the dovish counterrevolution within the US central bank, not the positive reports that strengthen further the expectations of earlier hikes in the federal funds rate. So, the recent report could increase the bond yields and support the American dollar, creating downward pressure on gold. However, the initial response of the yellow metal was positive. As the chart below shows, the price of gold increased on Friday. This is probably because the report wasnt as good as it could be  i.e., although the nonfarm payrolls release beat expectations, the unemployment rate increased, suggesting that the Fed may, after all, not taper as soon as some investors believe. Golds performance amid strong payrolls data is reassuring a bit. The yellow metal is still in the game; it may even return more decisively to the spotlight if investors cease to be relaxed about higher inflation. So far, the US central bank believes that inflation is transitory and markets are calm, but inflation may turn out to be more persistent than the Fed officials and the pundits claim. In such a scenario, the FOMC will have to catch up, which could trigger volatility or even recession; this is an environment in which investors could again switch to gold. But this is still a song of the future, and in the meantime, gold may struggle. Anyhow, for now, investors are focused on the upcoming (tomorrow!) minutes from the latest FOMC meeting. They should provide us with more clues about the Feds monetary policy and the direction of gold prices in the future. If you enjoyed todays free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If youre not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. Its free and if you dont like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhD  Sunshine Profits: Effective Investment through Diligence & Care