Gold and the US Employment Report

Last week we looked at how the US$ gold price performs around FOMC meetings, with a focus on the trading week leading up to the FOMC Announcement day. This week we have done the same with regard to the monthly US employment report. Here's what we found:

The table presented below shows the date of every monthly employment report from the beginning of 2013 through to the present, the gold price at the end of the day prior to the report, gold's daily closing price 6 trading days prior to the report, and the difference between these two prices. When this difference is negative it means that the gold price fell during the 5 trading days leading up to the day on which the latest monthly employment report was issued. The table also shows the price change on the day of the report. 

There were 117 weeks from the beginning of 2013 until the March Employment Report was published in early-April. The cumulative change in the gold price from the beginning of 2013 until 2nd April 2015 was -$471 (a loss of $471), which amounts to an average loss of $4 per week. The cumulative change during the 28 pre-Employment-Report trading weeks over the period since the beginning of 2013 was +$101, or an average GAIN per week of $3.60. Therefore, the data since the beginning of 2013 suggest an UPWARD bias during the trading week leading up to the release of the monthly employment report. Although the average weekly gain was only $3.60, the bias is significant because it happened during a downward trend.

Far more interesting than the upward bias during the 5 trading days leading up to 'employment day' is the performance on the day itself. On the day of the report there has been a strong DOWNWARD bias and much greater-than-average volatility. Specifically:

1. There was a cumulative loss of $189 over the Employment-Report days since the beginning of 2013, which means that about 40% of gold's total loss over the 28-month period in question occurred on Employment Report days.

2. On a daily closing basis the gold price has moved by $20 or more on about half of the Employment-Report days over the period in question, a fact that understates the actual volatility because it leaves out the large intra-day swings that are regularly provoked by the employment news.

There are two other aspects of the above table that are worth highlighting. First, the results have been skewed to some extent by the $110 loss -- one of the largest single-day losses in gold market history -- on 1st February 2013. Second, prior to the release of the March Employment Report in early-April there had been a strongly-negative 'employment-day' bias going back seven months. This is not difficult to explain, because during this period there was a string of better-than-expected employment reports (bullish economic news is bearish for gold).

What is the next monthly employment report, which will be published on Friday 8th May, likely to indicate? We have no idea and neither does anyone else. The rate of jobs creation is such a lagging measure of economic performance that consistently bad news on the employment front generally doesn't happen until well after a recession has begun, so the fact that the March employment report (published in early-April) was very weak says nothing about what the April employment report will indicate.

We think that the main takeaway from the above table is that it is much riskier than usual to have a sizable short-term gold position (a long position or a short position) just ahead of a monthly US employment report. Long-term speculators can ride-out the volatility, but short-term speculators should probably avoid it by being out of the market or 'flat' when the employment report is released.

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