Poor US Jobs Report Cause Volatility In The Price Of Gold

Saturday, October 8, 2016

gold bars

Gold has been on a devastating downward spiral as of late. However, it seems as though the precious metal may be working to find support. Early yesterday, the United States labor department released the US jobs report for September. Unfortunately, the report was far from positive, leading to stronger safe haven demand equating to early gains in the price of gold. From there, we've seen quite a bit of volatility as the precious metal teeters just below or just above the breakeven point. Today, we'll talk about the report, why it caused the free fall in gold to slow, and what we can expect to see from the price of gold ahead.

Minimal September US Jobs Growth

The US jobs report for September was released early Friday morning. To be sure the report wasn't quite as robust as what we have been seeing as of late. According to the report, US jobs growth came in at 156,000 for the month. While this seems like a great number, that's not necessarily the case. The truth is that the US economy is considered to be doing well when it adds at least 200,000 jobs per month consistently. With yesterday's low number added into the average for the year, the country has only been adding about 178,000 jobs per month throughout. That's a real concern.

However, that wasn't the only concerning part of the report. Another big factor is the unemployment rate in the United States. According to the labor department, unemployment has grown by a tenth of a point. By the end of September, the unemployment rate in the United States had grown to 5% flat.

What Does This Have To Do With The Price Of Gold

At first glance, it may seem as though US jobs growth isn't quite that important for gold investors to watch. However, that notion couldn't be further from the truth. Ultimately, there are two reasons why this data can, and usually does move the price of gold...

  • Safe Haven – First and foremost, gold is largely considered to be a safe haven investment. As a result, any data associated with the state of the global economy, or the US economy for that matter, will likely cause movement. In general, good economic news will lead to declines in gold. However, the news released yesterday was anything but positive. As a result, we're seeing gains in the value of the precious metal.
  • Fed Rate – Another major factor here is the Federal Reserve's interest rate. For some time now, the Fed has been working to increase its rate. However, it can't quite do that when economic conditions are concerning. Because an increased rate will likely lead to gains in the value of the dollar, gold tends to gain when weak economic data comes out of the United States, showing that there will likely be another delay in the plan to increase interest rates.

What We Can Expect To See Moving Forward

While the price of gold is working to find support as investors digest the jobs’ report, my opinion with regard to gold in the short-term is relatively bearish. The truth is that things are shaping up to exactly mirror last year’s results. The Federal Reserve is likely to increase rates in December - and while the global economy still isn't strong enough to sustain the hit leading up to the rate hike, precious metals investors will likely be concerned. As a result, I'm expecting to see volatility in the price of gold until January. However, if history repeats itself, we're going to see some incredible gains; partly fueled by currency pressures in the global market caused by Federal Reserve decisions. 

Joshua Rodriguez

Joshua Rodriguez is an avid financial professional. He is the owner and founder of CNA Finance, a partner at Modest Money, and a writer for US News & World Report, Investing.com, and more! Joshua takes a strong fundamental approach to market analysis and enjoys offering his take on what we can expect moving forward. You can reach Joshua at cnafinancehelp@gmail.com.