Gold Jumps To Test 3-Week High On NFP Miss

Gold popped to retest Monday’s three-week high at 1248.40, boosted by a terribly nonfarm payrolls print. The economy added just 74,000 new jobs in December, well below market expectations that were running around 200,000, and the weakest payrolls number in two-years.

Despite the soft jobs growth, the unemployment rate dropped from 7% to 6.7% as the labor force participation rate dropped yet again to 62.8%, the lowest level in 36-years. A record 91.8 million people in America are not in the labor force.

My immediate reaction was that the FOMC should have lowered their unemployment guidance from 6.5% to 6% (or even lower!) at the December meeting, rather than just talking about it. Clearly a 6.5% unemployment rate is not going to result in a rate hike at this point. And those that had said the Fed tapered prematurely are feeling vindicated.

The Walls Street Journal tweeted the following comment, attributing it to The Economist’s Greg Ip:

“They’re going to worry that they were too quick” to taper but won’t halt the process given rising QE skepticism."

That sentiment was validated to some degree when Richmond Fed hawk Jeffrey Lacker said the “dramatic fall” in jobless rate shows “substantial improvement”. In ignoring the ongoing plunge in labor force participation, I must conclude Lacker was part of the majority of FOMC participants that “judged that the marginal efficacy of asset purchases was likely declining.” In looking purely at the jobless rate and calling it “substantial improvement,” it seems Mr. Lacker is trying a little too hard to make a silk purse out of a sow’s ear.

Derek Thompson, senior editor and business columnist at The Atlantic, tweeted this gem:

BLS: In 2013, the population grew by 2.4 million and the labor force declined by 500,000. To use some economic jargon, that is WTF-y.

Things could be worse though: The Canadian employment report saw jobs contract by a whopping 45,000. Remember that the population of Canada is about 1/10th the size that of the U.S. and their labor force is about 17.6 million. The U.S. civilian labor force by comparison is 155 million. On a percentage change basis, it would be the equivalent of the U.S. losing nearly 400,000 jobs in December.

The Canadian dollar plunged to new four-year lows amid heightened expectations that the BoC will cut rates. It seems my unintentional theme this week — that the age of easy money is here to stay for some time — just gained some additional credence.