Poor Jobs Report Leads to Higher Gold and Silver Prices – But will it last?

The US Bureau of Labor statistics reported that some 75,000 new jobs were created in May rather than the 185,000 most analysts were expecting.

Immediately, the US dollar dropped on the news, as a prelude to the assumption traders are now making; that the US Fed will have to reduce interest rates shortly, as clearly the economy is slowing.

Indeed, the US dollar index has dropped by almost one point to 96.53 at the time of writing, and this is indicative of the power these traders have over economic statistics.

Commensurate with that dollar fall, Gold has risen some $15 on the news from around $1333 to its current level of $1346 and silver has risen about 21 cents on the news from $14.88 to $15.09.

Now before anyone in the gold and silver community becomes too excited, stock markets have also risen, with the Dow up 226 points already at 25,947 and the Nasdaq and S&P up around 1% also.

So why do we say don’t get too excited?

Well, first of all, although the rise in jobs was small in comparison with expectations, the US unemployment rate has remained at 3.6% its lowest level for 50 years.

The average increases in wages for May were 0.2% but the overall effect is to reduce annual wage growth rates from 3.2% to 3.1% – so ironically, despite improved employment conditions, wages appear to be holding still or falling slightly (in terms of growth as opposed to actual decline).

Why is this significant?

Well there are no inflationary pressures as far as economists are concerned. In general, gold performs better during inflationary times as opposed to deflationary times and the past 8 years gives testament to that.

Further if we are entering economic slowdown, then the industrial demand for silver will fall and gain that will put downward pressure on prices only offset by the demand for it as a quasi-monetary metal.

Ah! but we hear you say, the dollar has weakened, this is the beginning of the end – the FED will have to reduce rates in July and the dollar will weaken further.

Our response is simple; the dollar will weaken compared to what?

A basket of other countries’ currencies? – all of whom have their own economic problems and are themselves considering a QE strategy (if they are not already involved in one.)

We can hardly see sterling or the Euro performing solidly against the US dollar at this stage even though traders are taking fright for the moment. Once reality sets in, do not be surprised to see that dollar index rise back up.

But let’s suppose we are wrong, and the FED does reduce interest rates sooner than we anticipate, and the dollar falls one or two points. What will happen? Will gold go to the moon?

No, it won’t, most available monies are likely to rush into the equity markets as they have been subdued this year because of the threat from last December that the FED might raise rates.

So, all of those wonderful worthless fiat US currency dollars, instead of heading for gold and silver may be heading for the Dow S&P and Nasdaq – well at least for the short term.

What may cause gold and silver to rise, are increasing tensions with China, Mexico, Iran, North Korea and Russia and to some extent Venezuela – especially if military action is involved and then we may see serious funds moving into gold and silver.

For the moment we are enjoying the slight rise in precious metal prices, but as things stand, whilst they may rise a little further until markets have fully digested the figures, we are keeping our powder dry on any predictions of any major rise in gold and silver prices – well at least for now.