The U.S. economy added 211,000 jobs in November. What does it imply for the Fed policy and the gold market?
Total nonfarm payroll employment increased by 211,000 in November, according to the U.S. Bureau of Labor Statistics. The recent job gains are lower than in October, but solid enough to keep the Fed on course to raise interest rates in December. The number of created jobs increased more than expected and the change in total nonfarm payroll employment for September and October combined was revised up by 35,000.
Other data is not so impressive. The unemployment rate remained at 5.0 percent, while wage growth for U.S. workers moderated after a strong gain in October. However, on balance, the November report confirms that the U.S. labor market is improving, which warrants an interest rate hike this month.
Surprisingly, the price of gold jumped more than 2.5 percent after the publication of the report on the employment situation. Why? The probable reason was the fact that the number of persons employed part time for economic reasons increased by 319,000, after declines in September and October. It means that the underemployment rate increased, which indicates that the pace of tightening will be slow.
In other words, the Fed hike in December seems to already be in the price of gold. Now, the gold trade is not about the Fed hike, but about the pace of the tightening. Investors accepted the rise in interest rates at the next FOMC meeting and are now looking into the more distant future.
The bottom line is that the November payrolls report was solid enough to assure the FOMC members that the U.S. economy would withstand an interest rate hike in December. However, some labor-market slack remained, which implies that the pace of tightening would be rather soft and gradual. Provided that the December hike is fully reflected in the price of the shiny metal and the gold trade is now about the future path of the hikes, the Recent Employment Situation Report may be positive for the gold market.