Gold Shrugs Off Strong December Payrolls Report

The US economy added 292,000 jobs in December. What does it imply for the Fed policy and the gold market?

Total nonfarm payroll employment rose by 292,000 in December, according to the U.S. Bureau of Labor Statistics. Importantly, the recent job gains are much higher than expected (200,000). Additionally, the change in total nonfarm payroll employment for October and November combined was revised up by 50,000.

The unemployment rate remained at 5.0 percent again, while the hourly wages declined a penny to $25.24, marking the first decline in a year. Thus, we have an interesting situation: the U.S. economy creates jobs, but the unemployment rate is unchanged, while the wage growth remains sluggish. The explanation may lay in the growth of part-time employment at the expense of full time jobs. But on balance, the December report was interpreted as a sign of the US economy’ strength. 

However, the yellow metal practically shrugged off the strong December payrolls report. The price of gold declined slightly, but bullion managed to mark the best weekly performance since mid-August. It may imply two things. First, the uncertainty about China was still present and supported the price of gold. Second, investors shifted their attention from the labor market to inflation after the December FOMC minutes. In other words, the Fed is focused on inflation now, so wage growth is under scrutiny. And wage growth was the worst piece of data in the recent payrolls report.

The take-home message is that the December payrolls report was very strong, but wage growth remains sluggish. This is probably the reason – along with uncertainty about the China – why the price of gold did not dive after the stronger than expected job gains. The Fed is already convinced about the strength of the labor market (which may actually be weaker than commonly assumed), and it would not be much more convinced. To justify next interest rate hikes, the U.S. central bank needs signs of strong wage growth, which were absent in the December payrolls report.

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Arkadiusz Sieron

Sunshine Profits‘ Gold News Monitor and Market Overview Editor