Jobs Moving Gold Shifting

Some of gold’s most-volatile days erupt after monthly-US-jobs data is released.  This granddaddy of all economic reports can really move markets both ways.  Gold can surge on substantial downside surprises, or plunge on big beats.  Gold and gold-stock traders really need to understand the dynamics fueling these big jobs-reports reactions.  That not only psychologically girds traders, but helps them game likely outcomes.

Usually on each month’s first Friday at 8:30am, the US Bureau of Labor Statistics publishes its latest Employment Situation Summary report.  The December 2024 US-jobs data will already be released by the time this essay is published.  But realize I research, write, and proof these weekly web essays on Thursdays, before posting them Friday mornings.  So I have no idea how today’s new jobs data played out!

But over my past quarter-century in the financial-newsletter business, I’ve watched almost every nonfarm-payrolls release and markets’ subsequent reactions in real-time.  Because of those, Jobs Fridays prove some of the most-interesting days in the markets.  You’d think the global gold market wouldn’t care about monthly changes in US jobs reported by its government, as there’s certainly no direct relationship there.

Yet the indirect causal-chain one is powerful.  Monthly jobs data can really move gold because it affects traders’ perceptions of the Fed’s likely trajectory for its benchmark federal-funds rate.  The US Congress has given the Federal Reserve a dual mandate, price stability and maximum employment.  The former of course is the obvious primary mission of central banks managing fiat-money supplies, not fueling inflation.

That should be the only goal, but back in November 1977 the ruling Democrats hyper-politicized the Fed forcing it “to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates” through amending the Federal Reserve Act.  Back then the late Jimmy Carter was the Democratic president, and Democrats dominated the Senate and the House at 61 to 38 and 292 to 143 seats!

So forcing the Fed to take its eyes off the inflation ball by distracting it with jobs is a Democratic curse.  It is because of that partisan dual mandate that monthly US jobs reports really move markets.  Traders see nonfarm payrolls deviating significantly from economists’ expectations as directly altering monetary policy at the Fed.  Better-than-expected jobs imply a higher federal-funds-rate trajectory ahead, and vice-versa.

That still shouldn’t affect gold fundamentally, but does because of gold futures’ dominance over prices.  Speculators trading gold futures are allowed to run extreme leverage, which gives them outsized impact on gold prices.  Midweek at $2,664 gold, each 100-ounce gold-futures contract controls $266,400 worth of the metal.  Yet specs are only required to maintain cash margins in their accounts of $11,500 per contract.

That allows crazy maximum leverage of 23.2x, over an order of magnitude greater than the 2x legal limit in the stock markets!  Running at those levels, every dollar deployed in gold futures has 23x the price impact on gold as a dollar invested outright.  But risks are proportionally-extreme, as a mere 4.3% gold move against specs’ bets will wipe out 100% of their capital risked!  That forces an ultra-myopic focus.

Gold-futures speculators can’t afford to care about gold trends over months, just what gold is likely to do in coming hours.  So they often look to the fortunes of the US dollar as their primary trading cues.  They usually buy gold futures when the dollar falls, and sell when it surges.  Those monthly jobs reports really move the US dollar, which makes more sense since Fed rate decisions directly affect dollar-denominated yields.

Thus the jobs-report-to-gold causal chain runs through the dollar’s reactions to nonfarm-payroll surprises.  If monthly jobs come in way better than expectations, that implies top Fed officials will keep their FFR higher.  It doesn’t matter if that means more hikes or fewer cuts, the result is the same.  Higher rates likely ahead mean higher yields, bolstering the US dollar’s competitiveness against other major currencies.

So the dollar is bid and the euro often sold.  Incidentally the benchmark US Dollar Index that gold-futures traders watch like hawks effectively is the euro.  That common currency accounts for a whopping 57.6% of the USDX’s weighting, with the Japanese yen and British pound a distant second and third at only 13.6% and 11.9%!  When the dollar rallies sharply, gold-futures guys rush to dump longs and add shorts.

Examples of this are legion in recent years, but the most-striking one came on June 2024’s Jobs Friday.  Early on June 7th, the Biden Administration’s BLS reported that the US created 272k jobs in May.  That proved a major upside surprise, a massive four-standard-deviation beat to economists’ +190k consensus estimates!  So traders immediately began pricing in fewer Fed rate cuts because of much-stronger jobs.

The USDX surged 0.8%, a big daily move for the world’s reserve currency.  Gold had already been hit overnight on China’s central bank breaking an 18-month streak of reporting adding gold reserves.  So that jobs beat unleashed withering gold-futures selling.  By the time the dust settled that day, gold plummeted 3.6% for its worst daily loss in 3.6 years to close at $2,286!  Under Biden, gold has often sold off on Jobs Fridays.

His administration has been chronically overstating jobs for political gain.  Jobs growth is Biden’s favorite economic thing to crow about, so his bureaucrats have been fabricating headline numbers for their boss.  With plenty of estimates feeding headline nonfarm payrolls, they can easily be manipulated to claim better jobs creation.  One key example is the birth-death model that is supposed to estimate small-business jobs.

As those aren’t directly tracked by the BLS’s establishment survey feeding nonfarm payrolls, they have to be estimated.  In that particular early-June jobs report, the birth-death guess accounted for a whopping 231k out of those 272k reported jobs created!  Over the prior year to that point, a shocking 56% of all US jobs added came from birth-death!  Yet small businesses have been failing in droves under Bidenflation.

The BLS also runs a second household survey, which is much larger and more accurate.  That month it showed Americans actually lost 408k jobs in May!  That huge 680k negative difference between those two surveys was among the largest in recent years.  Historically the establishment and household surveys have usually tracked and confirmed each other, not deviated massively like under the Biden Administration.

If the BLS was reporting monthly US jobs honestly, subsequent revisions should be roughly evenly split between lower and higher.  Every new jobs report includes past-two-month revisions, which under Biden nearly always proved negative and were often quite large.  Big headline beats would make the economy look better and boost stock markets, and Biden or his top economists would come out those very days to boast.

But the very next months, those big nonfarm-payrolls upside surprises would often be revised away.  A particularly-egregious example happened on Jobs Friday in early February 2024.  Economists were looking for 185k jobs created in January, yet the Biden BLS reported another enormous four-standard-deviation upside surprise of +353k!  That was fueled by an utterly-absurd +2,988k-jobs seasonal adjustment.

Then only one month later, the BLS revised that +353k down by a huge 35% to just +229k jobs!  Had that been the original headline, markets would’ve reacted very differently.  Then the cumulative discrepancy between those two surveys during the Biden Administration soared near a record 9m jobs!  In other words, the BLS reported 9m new jobs through headline nonfarm payrolls that didn’t exist in the household survey.

And on top of those big monthly downward revisions, the BLS also has additional annual revisions to its jobs data.  The latest were released in late August, for the year ending Q1’24.  Jaw-droppingly then the BLS claimed it had overstated headline nonfarm payrolls by another huge 818k jobs even after monthly revisions!  That was the second-biggest negative jobs revision ever, slashing the past year’s average jobs growth.

That plunged from +242k per month to just +174k!  Had the BLS been reporting honest jobs numbers in recent years, everything would look way different.  The AI stock bubble wouldn’t have ballooned so corpulent, the Fed wouldn’t have hiked rates so aggressively and high, and the dollar would be much lower and gold way higher.  It is staggering how much politically-inflated jobs data has distorted these markets.

While rare under the Biden Administration’s economic-data gaslighting of Americans, there have been some Fed-dovish jobs reports goosing gold.  One that comes to mind was two years ago in early January 2023.  Headline US jobs did modestly beat again, at +223k actual versus +200k expected.  But other data is included in these monthly reports, like average hourly earnings which was key then with inflation raging.

Those wages climbed 0.3% month-on-month and 4.6% year-over-year, both cooler than economists’ forecasts of +0.4% and +5.0%.  That took pressure off the Fed to continue its blistering rate hikes, so that day the USDX plunged 1.2% while gold blasted up 1.8% to $1,866.  So weaker-than-expected monthly US jobs reports looking Fed-dovish can hit the dollar hard spawning gold-boosting gold-futures buying.

This is especially relevant now with the Biden Administration leaving office and Trump 2.0 taking over.  Odds are the chronic overstating of nonfarm payrolls for political gain under Biden will cease or at least dramatically wane in coming years.  The Trump Administration will install its own appointees to oversee the BLS, and hopefully they will prove more honest with the American people on how US jobs growth is faring.

But like in every government agency, rank-and-file employees under the handful of appointed leaders will always be overwhelmingly-Democrat.  That’s even true at the Fed, where something over 90% of its 400ish PhD economists on staff are registered Democrats!  With Republicans in power the BLS bureaucrats will likely be less optimistic on their estimates feeding nonfarm payrolls, either purposely or subconsciously.

So after four years of monthly US jobs reports mostly being dollar-boosting gold-hitting upside surprises, they will probably swing back to many more downside ones under Trump.  Because of manipulation of key government economic data under Biden, the US economy is nowhere near as strong as claimed.  The great majority of Americans are suffering under festering much-higher prices, with no savings and high debt.

That means slowing consumer spending, which drives over 2/3rds of the entire US economy.  If cash-strapped Americans drowning in credit-card debt are forced to slow purchases, corporate revenues and earnings will deteriorate.  That will force more layoffs and fewer jobs, weakening headline jobs growth.  With this backdrop, nonfarm-payrolls misses fueling gold-futures buying should become more common ahead.

Because these monthly US-jobs reports are affecting gold via gold-futures trading, gold’s likely reaction leading into any Jobs Friday can be gamed.  This chart superimposes gold prices over speculators’ total gold-futures longs and shorts, which are reported weekly in the famous Commitments of Traders reports.  Overall spec gold-futures positioning really shapes the odds of how these traders will react to jobs surprises.

Because of those extreme risks inherent in hyper-leveraged gold-futures trading, only a small fraction of traders are willing to attempt it.  And they really don’t control much capital in the grand scheme of the markets, although its gold-price impact is greatly magnified.  So over time spec longs and shorts tend to form largely-horizontal trading ranges.  As spec longs greatly outnumber shorts, they are more important.

Over the past 52 CoT weeks, total spec longs have averaged 349.2k contracts or 3.9x the 90.3k shorts!  That makes how specs are trading longs about four times more important for gold’s near-term price direction.  For many years spec longs have generally peaked around 415k contracts, their secular upper-resistance zone.  When that is exceeded, specs’ likely capital firepower for buying more longs is largely-exhausted.

With little room to keep buying, they soon start selling fueling gold pullbacks and corrections.  This critical dynamic was one of two primary reasons I warned in early October that gold’s selloff risk was high then.  Right before that in late September, total spec longs soared to 441.0k contracts which proved their fifth-highest levels on record!  When spec longs are really high, big Jobs-Friday gold-futures selling is far more likely.

But over the 14 CoT weeks since that 4.6-year spec-longs high, those traders have dumped a massive 110.8k contracts.  As of the latest CoT data before this essay was published, total spec longs have fallen way back to just 330.3k.  Such gold-bullish levels were last seen in early July when gold was still down near $2,329.  It’s useful to consider spec longs within their recent trading range, like during this gold upleg.

It’s been a monster, with gold soaring 53.1% higher at best over 12.9 months in a truly-remarkable year!  Spec longs again peaked within that at 441.0k in late September, after falling as low as 252.9k back in late February.  That makes for an enormous 188.1k-contract trading range within this gold upleg.  Now at 330.3k, spec longs are just 41% up into that.  That implies specs have considerably more room to buy than sell.

Heading into any Jobs Friday no matter how headline nonfarm payrolls print, sharp gold selloffs are less likely the lower spec longs are.  So I’m more nervous for jobs-reports-driven gold plunges if longs are way up near 90% than if they are down under 50%.  The more gold-futures selling speculators have done recently, the less they can do in response to jobs-data-driven USDX moves on shifting Fed rate trajectories.

So while I’m writing this midday Thursday well before these latest jobs numbers, gold really isn’t likely to plunge on heavy gold-futures selling.  You’ll know if that proves correct by the time you read this.  Even if Biden’s bureaucrats report yet-another massively-overstated headline number in their long parade of them before Trump takes control, gold should prove resilient with spec longs running down at 6.0-month lows.

Speculators’ overall gold-futures positioning isn’t just important heading into Jobs Fridays, but always.  How these guys are collectively trading is gold’s overwhelming short-term driver.  Unfortunately getting and understanding this essential gold-futures CoT data isn’t easy.  The CoT spreadsheets reporting this are gigantic, including a staggering 188 columns per week!  It takes analysts years or decades to figure out.

Thankfully most traders don’t have to.  I started deciphering these cryptic CoTs way back in 2005, and have been analyzing them ever since growing in knowledge.  I report on all gold-futures CoTs as they are released in all our weekly and monthly subscription newsletters.  That includes specs’ current positioning, how that is changing and any trends, and what the near-term implications for gold and its miners’ stocks are.

Integrating gold-futures data into gold-stock trading has proven lucrative.  Year-to-date 2024 as of mid-December, our newsletters realized 79 stock trades.  Including all losers, they averaged fantastic +45.4% annualized realized gains!  That trounced gold stocks as a whole, with their leading GDX gold-stock ETF merely rallying 9.4% last year.  An extreme anomaly, big-bargain gold stocks are due to revalue far higher in 2025.

With the Biden Administration’s radically-unprecedented economic-data manipulation finally ending, gold and gold stocks ought to thrive.  Currently traders are only pricing in two 25-basis-point Fed rate cuts in 2025, across all eight FOMC meetings!  Those would barely keep this young cutting cycle alive.  It won’t take many long-overdue headline-jobs misses to imply more cuts, weighing on the USDX and boosting gold.

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The bottom line is the way jobs data moves gold is shifting.  Under the Biden Administration, the BLS has chronically overstated headline nonfarm payrolls.  As endless subsequent big downward revisions prove, this is indisputable.  That gaslighting for political gain often goosed the US dollar, spawning gold-futures selling hitting gold.  But this regime is ending, with Trump and his appointees soon taking control of data agencies.

Hopefully new management will pressure government bureaucrats to be more honest in their economic reporting, which better serves the American people.  Weaker monthly jobs data better reflecting reality will be bullish for gold.  That will leave traders expecting a lower federal-funds-rate trajectory ahead, driving US-dollar selling and gold-futures buying.  Gold stocks will soar on resulting higher prevailing gold prices.