The U.S. economy added 223,000 jobs in June. What does it mean for the gold market?

At first glance, the June jobs report is very positive. The U.S. economy created 223,000 new jobs, while the unemployment rate fell from 5.5 percent to 5.3 percent, the lowest level since May 2008. The gains were fine (the economy produced at least 200,000 jobs in 13 of the last 15 months) and widespread.

However, beneath the surface, this was not a great employment report. First, the gains were below expectations for a 230,000 gain and also below the previous 12-month average of 250,000. Second, the previous gains in April and May were revised downward by 60,000, in sum (April was revised from 280,000 to 254,000, while May’s gain was cut from 221,000 to 187,000). Third, average hourly wages were flat in June at $24.95. A lack of U.S. wage growth may prompt the Fed to postpone interest rates hike. Fourth, even a drop in the unemployment rate is paradoxically bad news, since it was caused by a decline in labor force by 432,000. The participation rate which measures the active part of the economy’s labor force (both employed and unemployed) fell to 62.6 percent, the lowest level since October 1977.

What is more, the June jobs report shows a huge divergence between the establishment report and the household survey. According to the latter, the U.S. economy actually subtracted 56,000 jobs in June. And the household survey also shows changes in the composition of the U.S. employment in favor of part-time jobs, which is definitely not a sign of a strong recovery in the labor market.

The key takeaway is that the June employment report cannot be regarded as a strong release. The job gains were below expectations and the long-term trend, wages were flat and there was a huge drop in labor force. Thus, the report calls into question the September interest rate hike. According to the CME FedWatch, traders assign only a 12 percent chance to a September rate hike. Therefore, the June jobs report is good news for precious metals and may strengthen the positive sentiment towards gold. With the Fed’s hike less likely, the concerns over Greece should be a stronger factor in the gold market, but we have to wait until the outcome of Greece's July 5 referendum on a bailout deal.

If you enjoyed the above analysis, we invite you to check out our other services. We focus on the fundamental analysis in our monthly Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals.

If you enjoyed the above analysis, we invite you to check out our other services. We focus on the fundamental analysis in our monthly Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals.

Thank you.

Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

Gold News Monitor
Gold Trading Alerts
Gold Market Overview