Gold and U.S. Unemployment

Sunday, 07 October 2012
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Published in From The CEO

On Friday, October 5th, gold took a step back a few notches on a surprising announcement from The U.S. Bureau of Labor Statistics.  The September rate of unemployment in the U.S., decreased to 7.8 per cent, and the country added 114,000 nonfarm jobs.  For the first 8 months of 2012, the unemployment rate held to a narrow range between 8.1 and 8.3 percent.  The actual number of unemployed persons, at 12.1 million, decreased in September by 465,000.

Gold dropped by almost $20.00 on this news because the markets reacted to what seemed like good news after more somber expectations of the employment market.  The country has been locked into its gloom from the highest unemployment rate since the Great Depression; and the fact that no modern president has been re-elected with an unemployment rate above 7.2 percent has been dogging the White House.  Under the circumstances, what constitutes good news turned out to be more like a sip of water to someone stranded in the desert when what he really needed was a full glass of water followed by some rest in an air-conditioned hotel.


Markets have a way of correcting for impulse.  So once it became clear that the optimistic BLS figure had more to do with improvement in government employment rolls rather than with jobs in the private sector, gold rapidly regained another $10.00 per ounce.

While it seems clear that traders and investors are not yet giving gold the momentum to break the $1,800 per ounce resistance barrier, the market is maintaining a strong bottom, despite the conspicuous addition of some short positions.

Another way to read the current gold market is that traders remain unconvinced that the Fed will read the figures as sufficient reason to back off QE3 anytime soon.  Significant resistance now holds firm between the psychological $1,800 mark and the August, 2011 high of $1,817. The US job figures also motivated a sell off of the US dollar, while the euro held above 1.3000.  Meanwhile European Central Bank President Mario Draghi announced that the bank would be willing to purchase short-dated bonds once Spain makes the formal announcement that a bailout is indeed open to them.

The BLS announcement then was treated by gold as a hiccup.  Quantitative easing remains the primary engine of the market.  As long as it holds, perhaps corrects a bit, and doesn’t sink, the gold market still holds promise for a world economy wracked by debt and the prospect of inflation.  While the yellow metal continues to flirt with resistance at the $1,800-per-ounce level, you would still be advised to continue to accumulate.  Inflation is just a short distance down the road.  Haveyou noticed gas and food prices lately?

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Trevor Gerszt

Trevor Gerszt has been passionate about gold since childhood. Growing up in South Africa, the world’s second largest gold producer, Gerszt spent his youth collecting gold coins. Surrounded by a family of experienced coin collectors, he gained valuable insight about the precious metal.