Strong NFP headline print not enough to stop gold

Precious metal prices closed out the week at USD $1300oz, as a much stronger than expected headline non-farm payroll (NFP) print wasn’t enough to give the bears conviction to push prices lower, with gold again trading with touching distance of its 200DMA.

Whilst no doubt influenced by the ongoing events in Ukraine, the reaction in the precious metal market Friday tells us a lot about the changed set up in markets today, compared to 2013, for had a major US economic data release beaten expectations by as much as the NFP print did on Friday, there’s no doubt prices would have plunged significantly.

That they did not suggests the bears aren’t quite as convinced of their position as they were last year, despite sentiment toward the sector remaining weak.

On that note, the much-awaited payrolls report, which was released Friday night Australian time, was a barn burner, at least at the headline level, and was music to the ears of the "weak Q1 data was just the weather crowd".

According to the survey, some 288,000 jobs were created in the month of April, well above expectations, with the consensus forecasts predicting a rise of around 210,000 jobs. Not only did the headline job creations comfortably beat expectations, but prior month results were also revised higher, and, to top it all off, the US unemployment rate dropped by 0.4% to just 6.3%, the lowest level since late 2008.

That’s the good news. Now for the bad.

First and foremost, the major reason for the drop in the unemployment rate was the staggering drop in the total number of people actually in the labour force, which fell by 806,000 people (all of a sudden 288,000 jobs doesn’t sound so great).This fall in the labour force brings the total LFPR to just 62.8% of the population, the lowest level in decades (March 1978 to be more precise). Indeed, if the LFPR was still at 65.7% today, as it was in June 2009 when the recession officially ended, the US unemployment rate would still be closer to 10%, rather than the 6.3% we are seeing in mainstream financial headlines.

What was hidden beneath the surface even made it into an article in the New York Times, titled “The jobs report isn’t as good as it looks” with the opening line stating that “rarely does a monthly report on the United States job market look so terrific on the surface while being so disappointing underneath”.

Compounding the problem, average hourly earnings in the US were actually flat, vs. expectations of a 0.2% rise, whilst the separate household survey showed a decrease of 73,000 jobs, well of from predictions of a rise of 250,000.

Other US economic data wasn’t so encouraging either, with factory orders coming in at only 1.1% in March, and the ISM New York Index dropping to 50.6 from 52.0.

Over in Europe (yes there’s an economy there too), unemployment remained mired near all time highs of 11.8%, whilst manufacturing activity rose slightly to 53.4 in April, decent but by no means strong.