Gold Price, Jobless Claims Lower

April 6th, 2017 by

Although each of the precious metals were treading negative territory by 9:30 am in New York on Thursday, gold and silver held onto most of yesterday’s late-session gains. This was surprising given the release of an encouraging weekly jobless claims report from the Labor Department this morning. Spot gold still traded above $1,250/oz despite losing 0.25% following the opening bell.

Spot silver was down 7¢ (-0.35%) to just north of $18.20/oz; meanwhile, platinum and palladium both lost about 0.8% during the first hour of the trading session.

Drop in Jobless Claims

The weekly report on trends in the job market from the Bureau of Labor Statistics (BLS) showed that jobless claims fell by 25,000 to 234,000 new claims for the week ending April 1st. This was not only a five-week low, but continued the years-long trend of sub-300,000 totals, which is often considered the cut-off point for a healthy labor market. In addition, the BLS data for the week previous indicated that the number of people receiving unemployment benefits also fell by 24,000, another encouraging sign for economists (and workers, of course).

The benefit to the stock markets was muted, however, thanks to overnight losses for indices in Asia. European shares were mostly trading higher this morning. Thursday’s unemployment data will be augmented by Friday’s big monthly nonfarm payrolls report.

Sour Grapes at the Fed

On Wednesday, the minutes from the March FOMC meeting were released, and the markets reacted with some confusion to the tenor of the committee’s discussions. While maintaining its general outlook for interest rates to be somewhere around 0.75% higher by the end of the year, the Fed expressed skepticism about high stock valuations.

This cartoon captures the irony of the Fed’s skepticism about high asset valuations.

Since the current snail’s pace of a rate-hike cycle began back in December 2015, the Federal Reserve has appeared unsure of how to unwind the post-recession era of accommodation through loose monetary policy. The comments from several FOMC members about equity prices being “quite high” is ironic—not because the members are materially wrong about stocks being overvalued, but because the central bank created this precarious bubble itself with years of quantitative easing (QE) and ultra-low interest rates.

question-mark-guy

While the Fed has undoubtedly made its own bed with regard to the behavior of the equity markets, it can’t be faulted for also seeing a cloudy domestic situation in the U.S. There is little to dispute in that observation.

Amid all other sources of market-related anxiety that traders and investors around the world may be feeling (and there are many such sources), the future direction of the American government is unclear from virtually every conceivable vantage point. Uncertainty hangs like a thick layer of fog over nearly every initiative or reform likely to be undertaken by this Congress and presidential administration: an overhaul of taxes, a revival of healthcare reform, and cutting various regulations, just to name a few. Moreover, it increasingly appears like the new administration will face the potential for greater military entanglement in the Middle East.

All of this is likely to drive a steady stream of safe-haven buying. At minimum, the general environment of uncertainty will divert some investment flows away from stocks as risk aversion rises. Still, the Wall St bulls have shown great persistence the past year or so. For the time being, gold is likely to remain stuck in its sideways pattern on either side of about $1,250/oz, but the yellow metal is poised to benefit when equities inevitably turn back from near their all-time highs.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.