Gold prices lower on upbeat jobs report, but gain for the week. U.S. stocks higher as U.S. economy generated 175,000 jobs in February. Gold last traded at $1,338 an ounce. Silver at $20.93 an ounce.
Fresh government statistics are once again sending mixed signals regarding the US economy.
The Labor Department reported this morning that the U.S. economy added 175,000 jobs last month, marking an improvement from January and topping economists’ expectations, but the unemployment rate rose to 6.7%, from 6.6% in January.
The 175,000 level is still not robust. Prior to December, the economy had been adding an average of 205,000 jobs each month. Taken over the entire past 12 month period, the average monthly increase was 189,000 jobs; so the employment picture is still in a downward trend.
The U.S. economy lost 8.7 million jobs amid the financial crisis, and as of February, only 8 million jobs had been recovered.
Once factoring in population growth, economists still estimate it will take years to get back to pre-recession health in the job market, when the unemployment rate was between 4% and 5%.
Meanwhile, long-term unemployment remains high. As of February, 3.8 million Americans were unemployed for six months or more. One key component of the employment reports paints a sobering picture. Men between the ages of 25 and 54 are in their prime working years. In February 2008, 87.4 percent of men in that demographic had jobs. Six years later, only 83.2 percent of men in that bracket are working.
This employment rate is an important indicator of the health of the labor market. This snapshot of the overall employment picture means the nation is not even halfway to a full recovery.
This is not good news for the dollar as it will add to the uncertainty about the US economy and financial markets, discouraging investment in US dollar-denominated assets.
The Commerce Department also released a report this morning. The U.S. trade deficit widened in January on a rise in imports of oil and other foreign goods.
The trade deficit increased to $39.1 billion, up 0.3 percent from December’s revised $39 billion deficit, the Commerce Department reported.
Imports rose 0.6 percent to $231.6 billion, reflecting a 9 percent jump in imports of petroleum. Imports of food and machinery also rose.
A higher trade deficit acts as a drag on economic growth because it means U.S. companies are making less overseas than their foreign competitors are earning in U.S. sales. It also serves as a drag on the value of the dollar relative to foreign currencies since more dollars are being sent overseas to foreign nations in return for imported goods. Increasing the supply of dollars tends to negatively impact its value.
One asset that has outperformed most paper assets, particularly stocks, so far in 2014 is gold. A variety of factors have contributed to this, most recently the crisis in Ukraine. Whether or not Russian troops march into Ukraine, it seems probable there will be a negative fallout from the conflict, with the possibility of sanctions disrupting trade and economic activity.
Michael Dudas, Precious Metals and Mining Analyst at Sterne Agee, says there are several reasons gold is moving higher.
Dudas believes the cause of the recent safe haven run-up in bullion will continue. He sees tensions in Ukraine as lingering, no matter what the outcome is in the near-term. He also sees a technical reason for gold to move higher.
“You have continued support of technicals,” says Dudas. “You have the gold price break above its 150-day and 200-day moving averages. That’s been very supportive after a multi-year decline in the metal.”
Though today’s employment data release may add a little bit of volatility to gold, it’s the longer-term issues that Dudas believes will be more important. “As long as the gold market has discounted the taper,” says Dudas, “and the Fed… continues to have zero interest rate policies for a pretty long period of time… I think that combination will continue to trade gold higher.”