Gold Surges as Rate Hike Expectations Collapse on NFP Miss

Gold surged more than $30 following today's disastrous jobs report for May. The dollar, yields and stocks all came under pressure as rate hike expectations for this summer collapsed.

The odds of a June rate hike are back at a mere 4%, right where they were prior to the April FOMC minutes being released, which started this whole 'June is on the table' nonsense. Prior this morning's jobs report, the odds were around 20%. Prospects for a July hike eroded from above 50% to 35%.

FTN Financial categorized the report as "awesomely bad." Here are several more initial reactions:

— Tony Fratto (@TonyFratto) June 3, 2016

— Henry Blodget (@hblodget) June 3, 2016

— Louisa Bojesen (@louisabojesen) June 3, 2016

— Jim Rickards (@JamesGRickards) June 3, 2016

Nonfarm payrolls came in at just +38k, the smallest gain since 2010, and well below expectations of +160k. Both April and March suffered negative revisions totaling -59k jobs. While the jobless rate fell to 4.7%, the reason why is cause for further concern: Americans not in the labor force soar to record 94.7 million, surge by 664,000 in one month (via ZeroHedge).

source: tradingeconomics.com Note the trend since late last year, remembering that that Fed hiked rates in December for the first time in nearly a decade. Then observe the trend in quarterly GDP since the Fed's rate hike.

source: tradingeconomics.com Now, tell me if you think a rate hike this year would be a prudent policy move. It seems to me that the Fed should be thinking more along the lines of easing, rather than tightening.

The Atlanta Fed's GDPNow model for Q2 remained at +2.5% with today's update. However, the recent raft of generally weak PMI reports prompted Markit to say,"PMI surveys point to GDP growing at an annualised rate of just 0.7-8% in the second quarter." In light of this and the latest jobs report, I wouldn't be surprised to see downward revisions to Q2 GDP forecasts in the weeks ahead.

When the FOMC minutes came out on 18-May, gold was trading above 1270.00. In the wake of today's big NFP miss, and the plunge in summer rate hike expectations, it's reasonable to assume that the decline in gold since that date is likely to be retraced.