Just when it looked like gold prices might be regaining upward momentum, today’s better-than-expected U.S. employment indicators for April triggered a brief wave of selling, selling that quickly knocked gold prices from this morning’s intra-day high near $1,490 an ounce in European trading to an intra-day low in New York near $1,455.
Despite the negative effects of fiscal drag resulting from the rise in payroll taxes earlier this year and the growing impact of sequestration-related Federal spending cuts, April’s “headline” unemployment rate fell to a four-year low of 7.5 percent from 7.6 percent in March.
Many mainstream economists and policymakers inside the Beltway see this decline - and the reported upward revision to the number of employed workers in the prior two months - as an encouraging omen of future economic prospects. However, skeptics like myself, note that these are “lagging” economic indicators, not “leading” predictors of future performance.
Moreover, today’s news is not as rosy as first appears: Importantly, the number of part-time employees who are seeking full-time work continued to grow, the average number of weekly hours worked continued to shrink, and large numbers of discouraged workers continued to exit the workforce. Involuntary part-timers and those who have given up looking are not counted among the unemployed.
A broader, more comprehensive, measure of unemployment - a measure that includes discouraged workers as well as part-timers who are seeking full-time employment - rose to 13.9 percent in April from 13.8 percent in March. With this in mind, it is hard to take much succor from today’s labor-market news.
Indeed, not withstanding today’s employment report, I believe recession-like economic conditions or worse - and the likelihood of additional monetary accommodation of one sort or another later this year - will fuel a resumption of the yellow metal’s bull-market uptrend.
Although the near-term prospects for gold remain uncertain, medium- to long-term performance could surprise investors and speculators alike.
As we’ve stated over and over again, much of the gold now purchased in physical markets around the world is going into “strong hands” - that is to say by long-term investors, many of whom will hold gold indefinitely, and by central banks, some of whom are accumulating bullion as a legacy for future generation as a reserve diversifier, alternative to the dollar and euro, or (as with China and Russia) to achieve their global monetary and economic ambitions.
Importantly, the “stickiness” of demand is creating a shortage of available physical gold - what I call “free float”, the result of which may very well be greater-than-expected future price increases once the market turns convincingly higher. In other words, available supply will be insufficient to satisfy demand except at much higher price levels.
What could be quite important for gold over the next few weeks and months is the possible interaction between economic policy developments, the flow of economic news, and the technical picture.
Small moves resulting from positive or negative news could shift price momentum just enough so that buying begets more buying or selling begets more selling as we saw a couple of weeks ago. ??The point here is that gold is at a critical juncture, gold-market uncertainty is high, and the potential for gold-price volatility — up or down — is great.
