A story of two jobs reports and how they took gold investors in a volatile race

The underlying feature of the price of gold over the past 48 hours is akin to a wild carnival race. It started yesterday when ADP released its national jobs report, which found private payrolls increased by 978,000 jobs last month. The report came well above economists polled by Reuters and the Wall Street Journal. Economists polled by Reuters had predicted that the private wage bill would increase by 650,000 jobs.

The ADP report is a joint venture with Moody’s Analytics and is always released ahead of the Department of Labor’s non-farm payroll report which comes out the next day. Yesterday’s report indicated that private employers in the United States have increased the pace of hiring new employees due to pent-up demand which is a direct result of a rapid reopening of the economy in the United States. While he said there were still shortages of workers and raw materials that held back the recovery in the labor market, the number of new hires as reported by ADP is well above estimates.

As we discussed yesterday and reported by Reuters, “The ADP report overestimated private payroll gains in the April Jobs Report, after underestimating growth during much of the recovery in the economy. ‘job, which began in May 2020, leaving economists cautious about reading too much in the report. “

MarketWatch also cautioned its readers about the limitations in obtaining usable information from the ADP report, stating, “The ADP survey is historically a bad month-to-month indicator for the official report on the market. government job, but they are both moving in the same direction this year. . Economists forecast an overall increase of 671,000 new jobs in May in Labor Department data due Friday. The count, which will be published Friday at 8:30 am. East, also includes government employees. “

Although many analysts, including myself, have pointed out that the ADP report on private sector employment is not necessarily a strong enough precursor to predict the Department of Labor’s employment report or l state of the American workforce. This did not stop many traders and investors from making profits or liquidating their positions en masse ahead of today’s report.

In fact, this report was the main reason why gold sold so spectacularly. Considering gold futures hit an intraday price of $ 1,920 on Tuesday of this week after a three-day holiday weekend, the US drama describes it well.

In today’s trading, gold futures traded lower ($ 1855) than yesterday’s low. However, once the numbers were released and in fact much lower than economists’ forecasts, a consensus emerged that there would be 671,000 jobs added last month based on a survey of Dow economists. Jones and the Wall Street Journal. bullish to bearish.

According to Brien Lundin, editor of Gold Newsletter, “With the consensus expecting an explosion in the number of jobs on the rise, gold was forecast for a fall, as it had proved sensitive to good economic news. or anything that would encourage the Fed to tighten its ultra-accommodative monetary policies. Instead, we got a disappointing number compared to expectations, and the metal rebounded in response. “

This put gold back into rally mode with the net result of a gain of $ 20.80 (+ 1.11%) on gold futures, compared to the Comex contract of August 2021, carrying the precious yellow metal at $ 1894.10 as markets close in New York on Friday.

I think what the last 24 hours have taught us is that gold traders and investors are so hungry for information regarding the Federal Reserve’s upcoming monetary policy that they are so focused on any fundamental event. which could alter the perception and sentiment of the market.

Information on when the Federal Reserve will refine its quantitative easing program and raise interest rates was presented transparently by the Federal Reserve in the minutes and press conference released by President Powell after each FOMC meeting. However, because their mandate depends on data, we know that at some point the Federal Reserve will start to lower and raise its federal funds rate. Simply put, the Fed’s monetary policy is a moving target and likely to be significantly restructured as the economy rebounds.

However, the incredible volatility from sharply bearish to sharply bullish over a 24 hour period is proof that traders and investors are prepared at all times to overreact, sometimes too quickly to economic reports as they arise. their publication. For those who want more information, please use this link.

Wishing you, as always, good exchanges and good health,

Warning: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. This is not a solicitation to trade in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for any loss and / or damage resulting from the use of this publication.

About Larry Noble

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