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Strong Jobs Creates Buying in Gold? Is All the Bad News Priced In?

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October jobs came in at 531k, finally beating expectations with strength shown across the board. Furthermore, August and September were both revised upwards by over 100k. ‘

Perhaps even more surprising is the early reaction in the gold/silver market. More on this below.

Figure: 1 Change by sector

This next chart compares the current month with the trailing 12-month average. A few key takeaways:

  • Every category is above the 12-month average except for Government and Leisure/Hospitality
  • Most categories are well above their 12-month average
    • Manufacturing is double the TTM: 30k vs 60k

Figure: 2 Current vs TTM

The table below gives a much more detailed breakdown of the numbers and the entire labor force. Some key takeaways:

  • All three sectors in government saw job losses, which continues the three-month average
  • Strength is seen across the board, especially Leisure/Hosp, Prof Business, and Trade/Trans/Util
    • All three sectors saw growth above 100k and have all averaged over 100k for the last three months

Figure: 3 Labor Market Detail

Revisions

This data is subject to revisions as new data becomes available. While the headline release gets a ton of market attention, the revisions get far less. The table below shows the impact of the revisions over different time periods. Please note this is as of the prior month since the most recent month has not seen any revisions. Important items to note:

  • The recent three month period has been revised up by a massive 171k jobs per month
    • Even though August was revised up twice by over 100k it was still a big miss compared to the expected 720k
  • Manufacturing has been revised upwards by over 50% over three months, moving from 90k to 137k
  • Over twelve months, the total has been revised upwards by almost 800k or 65k per month

These revisions are quite large by any standard. In normal times, most job gains come in around 180k-220k which is nearly the size of the three-month average in revisions.

Figure: 4 Revisions

Historical Perspective

The chart below shows data going back to 1955. As the labor force has grown in total aggregate numbers, the recessions along the way have caused dips in the general trend.

The Covid recession can be seen as the greatest job market loss. The chart also shows how much work the labor market still requires to regain the employment level seen prior to Covid (top far right drawdown). Prior to Covid, the job market had 152M people. That number currently sits at 148M. The job market is still 4M people short, despite the unemployment rate falling back to 4.6% (it was 3.5% pre-Covid).

Figure: 5 Historical Labor Market

The distribution of the workforce has changed significantly over the last 65+ years. For example, in 1955, manufacturing accounted for 30% of jobs vs 8.4% today. Education/Health Care has tripled from 5% to 16%.

Although the unemployment rate has been sharply falling over the last year (chart above), the labor force participation (61.6%) is still well below 18 months ago (63.4%) and much lower than the 66% pre-financial crisis.

Figure: 6 Labor Market Distribution

What it means for Gold and Silver

At the time of publishing (Friday morning -11/5/21), the gold market is seeing an interesting reaction. It is up today, despite what is perceived by the market as a very strong jobs report. As mentioned many times previously, the $1800 level has been monster resistance for gold. The number of failed attempts to break through has been very numerous.

The market gets as high as $1815 and then gets smacked back down. While the lower highs is concerning (it was extending as far as $1835), the higher lows show promise. Peter Schiff recently commented that the market may be running out of sellers. This appears to be the case as the support keeps moving up. Any push down below $1785-$1790 is getting bought.

Gold has now found a tight trading range of $1790-$1800. Peter often compares this to a coiled spring. When the market breaks through, it could blast through because there is no one left to sell. The question becomes the catalyst the causes the damn to break.

The market appears closer to that point considering that gold was bought on the taper announcement and bought again on a strong jobs report. Both of these should have been bearish for gold and yet the opposite occurred.

Perhaps the market has finally realized that the Fed will ramp QE back up considering the massive impact their actions appear to be having on the Treasury market. Or the new spending bills coming through congress will further swell the budget deficits. Maybe the market is really starting to digest the implications of exploding trade deficits.

It could be anything, but the gold market does seem to have carved out a bottom. Once $1800 is put in the rearview mirror it could be a very quick move to $2000. In the months ahead there are plenty of catalysts that could drive gold higher (e.g. slower tapering, higher inflation). The catalysts that should be driving the market lower (e.g. Fed tapering, strong jobs numbers) are doing the opposite.

The price action this morning suggests $1800 may still hold a bit longer, but the breakthrough seems to be drawing closer. As Peter Schiff said, all the possible bad news seems to be priced into the market. That leaves less room for the market to go down.

Data Source: https://fred.stlouisfed.org/series/PAYEMS and also series CIVPART

Data Updated: Monthly on first Friday of the month

Last Updated: Oct 2021

Interactive charts and graphs can always be found on the Exploring Finance dashboard: https://exploringfinance.shinyapps.io/USDebt/

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