Jobs Report Changes the Landscape for Gold

Gold soars as chances for a Fed rate hike this month evaporate. Brien Lundin, editor of Gold Newsletter, details what that means for investors.

Perhaps the lesson is this: Don’t count gold out.

Last week, I was expecting another thrust downward for gold, with the metal losing perhaps another $35–$60 to the $1,150–$1,175 range.

Instead, the metal soared $32 on Friday, thanks to the stunning miss on the May nonfarm payrolls report.

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Against the consensus expectation of 158,000 jobs being created in May, the report showed just 38,000 jobs—a shocking miss to the downside.

Rubbing salt in the wound was the fact that revisions to the April and March reports slashed another 59,000 jobs. The three-month average thus fell to just 116,000, a major deceleration from the monthly average of 219,000 jobs for the previous 12 months.

The headline unemployment rate fell to 4.7% from 5.0%, but that was solely due to 458,000 people leaving the workforce.

A 180° Turn in Expectations

Prior to Friday’s jobs number, the market had finally begun to believe the Federal Reserve governors who had been universally pleading that, “Really. . .this time we mean it. We’re going to hike rates this month or the next.”

While the odds of a June rate hike were still rather low at around 21% as judged by Fed fund futures, those odds immediately collapsed to only around 4% after the release of the May jobs number.

The odds of a July hike similarly collapsed, from 64% to just below 30%.

In other words, investor expectations made a 180° turn, from Fed tightening to, potentially, monetary accommodation if the employment data continue to point toward an economic slowdown.

I had been guilty of buying into the idea that the Fed was going to tighten soon. While the economic data had been mixed, the FOMC desperately wanted to …read more

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