Fridays horrific nonfarm-payrolls report took much of Wall Street by surprise: Only 160,000 jobs were created in April, the fewest in seven months and well short of estimates projecting at least 200,000.
What wasnt surprising was the fact that gold leaped higher on the news, topping $1,297. Although the yellow metal was unable to reclaim the psychologically important $1,300, it erased most of its losses for the week. Silver posted a slight gain, trading near $17.38 in the afternoon.
Devastating blow to rate-hike odds: Up 21% on the year, gold looks poised for further gains next week as the odds of an interest-rate increase at the Federal Reserves June meeting have all but faded after the jobs disaster. The dollar, accordingly, fell toward 18-month lows after the payrolls report.
The jobs number was a devastating blow to the people who believe that a June rate hike is on the table, RJO Futures strategist Phil Streible told Bloomberg. Now the chances have declined significantly, and as a result gold and silver are moving up and should move through their previous highs.
Indeed, $1,300 remains golds target for next week. Now that the slipping global economy is bearing testimony to the sweeping tide of deflation and the U.S. dollar is likely to weaken further from now on, we expect $1,300 to be attacked again and this time more successfully, said Julian Phillips of GoldForecaster.com.
Open interest at bullish record levels: And RBC Capital gold guru George Gero added, Gold is reacting positively to the jobs number, so with record-high open interest for the year in gold, the metal is expected to finally close over $1,300.
Coming on the heels of last weeks shocking 0.5% first-quarter GDP report, the jobs numbers reinforce the notion that the economy is losing serious steam. The labor-force participation rate fell back near record lows, and one analysis showed that 450,000 waiter and bartender jobs have been created since December 2014, versus absolutely zero manufacturing jobs.
With such weak economic fundamentals, its no wonder that hedge-fund legend Stanley Druckenmiller urged investors this week to dump stocks and buy gold. Now Societe Generale strategist Albert Edwards is repeating his warnings about the global economy.
Global economy to sink like Titanic: The dollars recent rapid slide has been accompanied by a constant backdrop of dovish cooing from the Fed, Edwards wrote. Until this week, both equity and commodity markets had embraced the weak dollar as the elixir to solve all their ills. That relief has now proved fleeting as fear of weak economic activity has reasserted its influence on investors. The weak dollar should be seen as merely a shuffling of deckchairs on the Titanic before the global economy sinks below the icy waves.
Risk assets are once again refocusing on the increasingly dismal prospects for global growth rather than the short-term relief of dollar weakness. The U.S. remains the main concern, although the rapid unraveling of Abenomics in Japan and a likely imminent tightening of monetary policy in China to snuff out yet another housing bubble in the major cities also feature high on investors worry list.
But it is in the U.S. that growth concerns remain most intense, with renewed weakness in the manufacturing ISM as we move into Q2 following on from the moribund 0.5% qoq Q1 GDP outturn.
The sad thing is that … the Fed has boxed itself into a corner, for surely it is clear to all in the markets by now that it’s not global risks that worry the Fed but the impact on the S&P. But all the Fed’s loosey goosey will prove irrelevant as the cycle ends. Get ready to suck it up as the inevitable recession demonstrates the Fed’s total impotence.
It ends with social unrest and double-digit budget deficits (again). It ends with investors losing faith with the Fed as the resumption of QE proves ineffective in reviving the economy. It ends in deeply negative interest rates, currency and trade wars, helicopter money and ultimately inflation. In a nutshell, it ends badly.