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U.S. Employment Figures Impact Trends in Gold Prices

Gold prices have moved higher over the last several weeks, as weakening economic data have increased chances for interest rate cuts from the Federal Reserve.  Sentiment has been consistently damaged by continued trade war tensions and equities valuations trading near record levels has made the precious space more attractive for investors.

Historically, lower interest rates tend to generate higher demand for precious metals assets and recent policy commentaries from the Federal Reserve have confirmed an increased level of concern for economic growth.  Continued deterioration in the economic data will only exacerbate those concerns and if we look at the broader trends in U.S. labor markets there is not much evidence that suggests a reversal over the next few months.  External trends will also be influenced by the value of the U.S. dollar and the prospects for a trade resolution between the U.S. and China.  However, the economic data reports may continue to take precedence and it makes sense for precious investors to have a send of the broader trends in those areas.

Nonfarm Payrolls Report

In May, U.S. nonfarm payrolls rose by 75,000 but missed market expectations calling for 185,000 new hires.  This followed an increase of 224,000 (downwardly revised) for the month of April.  Primary areas of strength were seen in healthcare and business/professional services.  In 2019, monthly hires have averaged 164,000, which is far below the monthly average of 224,000 that was visible in 2018:

United States Non Farm Payrolls
(Source: U.S. Bureau of Labor Statistics)

From 1939 to 2019, U.S. nonfarm payrolls averaged 125,700 and the figure hit its record highs in September 1983 (1.12 million new hires) and its record lows -1.9 million jobs lost) in September 1945.

ADP Employment Report

In the United States, a key hiring metric for private businesses is the monthly report from Automatic Data Processing (ADP).  In May, the ADP report showed 27,000 new hires for the period.  This was far below the 180,000 new hired expected by analysts, and weaker than the downwardly revised printing of 271,000 new private hires in April.  Ultimately, this was the lowest payroll increase since the first quarter of 2010:

United States ADP Employment Change
(Source: ADP – Automatic Data Processing, Inc.)

From 2001 to 2019, the ADP report has averaged 78,000 jobs gains per month.  In February 2006, the metric reached its record highs of 360,000.  In February 2009, the metric hit its record lows of -706,000.

U.S. Unemployment Rate

In May, the unemployment rate in the U.S. held at 3.6%, which is a 49-year low:

United States Unemployment Rate
(Source: U.S. Bureau of Labor Statistics)

From 1948 to 2019, the U.S unemployment rate averaged 5.75%.  The metric reached a record high in November 1982 (at 10.8%) and hit an all-time low in November 1953 of 2.5%.

Labor Participation Rate

The labor force participation rate measures the number of people actively seeking employment in the United States.  In May, this figure held steady at 62.80%. 

United States Labor Force Participation Rate
(Source: U.S. Bureau of Labor Statistics)

From 1950 to 2019, the U.S. labor force participation rate averaged 62.99%.  The metric reached its record high of 67.3% in January 2000 and hit its all-time low of 58.10% in December 1954.

Overall, the low labor force participation rate largely invalidates the progress that appears to be visible in the U.S. unemployment figures.  If these trends continue, it would not be surprising to see increased speculation calling for interest rate cuts at the Federal Reserve and this could support gold prices if investors move away from riskier assets and into the safety of safe haven precious metals.

Tony Davis
Tony Davis