Precious metals jumped on news from the US on Friday that the economy saw net 288K new jobs, much higher than the 215K the market had been expecting. Interestingly, the markets viewed the jobs report with concern rather than adulation.
The jobs numbers sent the Gold up 0.2%, Silver up 0.6%, Platinum up 0.9%, and Palladium up 0.1%.
Why did the precious metals markets respond this way? What does it mean for the precious metalsoutlook in 2014?
Precious metal investors viewed the report with concern for at least two reasons.
First, a better-than-expected jobs picture puts pressure on expected inflation. One of the safest places to hedge inflation risk is the precious metals markets.
Second, a better-than-expected jobs picture raises the risk of central banking misreads.
The uncertainty associated with central banking misreads benefits precious metal investors well.
What does the US jobs picture mean for precious metals markets outlook? Here are four speculations.
First, the following is a look at what employment in the US has done on a monthly basis over the past two years. As is indicated, the +288K is the best month over month figure since the +322K in April 2011. With this in mind, the outlook for the US jobs picture has been upgraded. The problem with an upgraded US jobs picture is the reemergence of inflation. Coming with the reemergence of inflation is the positive effect it has on precious metals prices.
Second, the US jobs picture also paints a positive picture for precious metals should the US economy fail to reenergize. The following is the year over year growth rate in US employment from 2001 to 2014. The black lines represent the natural flow of the business cycle. The question now, in regards to the US jobs picture, is whether the upward trend can continue from the current 1.7% Y/Y figure. If history is any guide, the +288K is an anomaly in the now decelerating US jobs picture. The improved outlook mentioned on the previous page argues that the US labor market will take the upward sloping pink line, which would most certainly indicate heightened inflation risk. On the other end, history would generally suggest the US economy would take the downward sloping pink line. Movement along the downward sloping pink line would indicate a pending recession, which, in turn, would indicate further monetary easing. Precious metals markets tend to benefit from monetary easing?
Third, although precious metal investors likely have not had enough time to digest the complete picture of the US employment picture, one area of real concern is the count of individuals “employed part-time for economic reasons.” For the second month in a row, this group of individuals jumped again, coming in at 7.465 million, about 52% above where it stood in January 2008. Essentially, the US recovery ought to be known as the “part-time recovery.” With the implementation of Obama’s generally disliked health care law, analysts do not expect the parttime number to back to “normal” for a long time, if ever. The weakness measured by the part-time employment figure likely indicates continued and likely unwise, central bank easing policies. Investors in precious metals will likely be the beneficiaries of further signs of weak US employment conditions.
Lastly, the outlook on the US jobs picture, as measured by average hourly wages, paints the picture of a US worker still under pressure from international competition and a weak jobs market. This month’s year over year growth figure came in at 1.9%. Overall, average US wages have been floating in the 2% range for the past four years. Common sense would indicate that would either accelerate or decelerate soon, which would be positive signs for holders of precious metals. If the numbers continue to float at the 2% cruising speed, US wages likely provide no indication of precious metal markets’ price appreciation or depreciation.
Overall, the situation in the US is interesting. Most of the signals from Friday’s US jobs report paint a positive picture for precious metals prices, although there are some indications of a pause.
