Keep in mind that ADP ( a private firm) had given us a 235,000 number on Wednesday. Also, the November payrolls number was upwardly revised from the previous 203K to 241K. That is what makes the December number so shocking.
The labor participation rate continues to shrink and this is something that runs the very real risk of becoming systemic. Sure that tends to shrink the overall unemployment number but at what cost to the rest of society?
The reaction in gold was as dramatic as was the reaction in the US Dollar. As a matter of fact, there seemed to be a bit of a resurgence in the "let's buy commodities" trade across the sector based on the weakness in the Dollar.
Crude oil moved up $1.70 a barrel at one point. Most folks would scratch their head and say, "Duh?" on something like that but we have come to expect the goofy reactions we get based off of these numbers. The market, instead of reacting with concern over the poor numbers and the resultant lower demand for energy, instead looks over at the Fed and thinks, " NO way they are going to taper right now". No immediate reduction in funny money and thus no immediate drop in liquidity being provided. Weakness in the economy means lower interest rates - lower interest rates means weaker Dollar and "Voila!", let's buy commodities today.
The problem is that nothing has therefore changed on the perceived inflation front. I maintain that wages must increase and hiring must pick up if we are to see any signs of serious inflation arise. What today does is just refuel the fears of deflation.
Perhaps some in the market are thinking along the same line and coming to the conclusion that the Fed must also be worried about deflation reasserting itself and thus will ease back on the Tapering.
Who knows but if the last two years of bond buying by the Fed, and certainly the $85 billion/month coming out of the most recent QE4 program has not resulted in any serious inflation issues, why should we expect another 2 years, 2 months, etc of bond buying to produce any at all?
Given that backdrop, gold is still going to face headwinds as it needs to see confidence in the US Dollar eroding to mount a sustained move higher in price. Thus I see two drivers - one -the US Dollar drops sharply or - two- the economic data shows more rapid growth heating up inflationary pressures. Either way the result is the same as far as the inflation issue goes.
The metal is pressing up against the downtrending 50 day moving average, a key technical point that most traders watch closely. It has not been above this level since late October of last year and then it only managed to hold above this level for 5 days before succumbing to another bout of selling. My guess is that we can expect the same as we move ahead. I remain skeptical therefore about gold's fortunes but will respect what the chart action tells me. Right now, the jury is still out as the ADX shows a directionless market on the daily time frame.
Bulls are close to getting control of the market but are not there yet.
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