Is This the Right Time to Buy Gold?
Steady unemployment rate
The headline unemployment rate fell in June from 5.50% to 5.30%. In July, it was steady at 5.30%. This is in line with market expectations. The level of 5.30% is just 0.10% above what the Fed considers to be consistent with full employment.
Wage growth improves
Wage growth is one of the very important factors in the overall employment picture. The average hourly earnings rose by 0.20% month-over-month in July—compared to no growth in June. The figures were in line with market expectations of 0.20% growth. The YoY (year-over-year) growth was 2.10% in July—compared to 2% in June.
The average work week also rose from 34.5 hours to 34.6 hours. This is the first time in five months that the work week has risen. More jobs and more working hours should result in more income and spending. In turn, this is good for the US economy. Consumer spending forms two-thirds of the economy.
Jobs data and gold
The recent employment data aren’t spectacular, but they’re strong enough to maintain the market expectations of a September Fed rate hike. The Fed has kept the interest rates at a near-zero level since 2008. Any rise in the interest rates would be negative for non-income earning assets, including gold. These investments will have to compete with interest-bearing securities. This has been the overhang for gold prices (GLD) for the past few months. This would eventually be negative for gold stocks like AngloGold Ashanti (AU), Kinross Gold (KGC), Eldorado Gold (EGO), Yamana Gold (AUY), Newmont Mining (NEM), and New Gold (NGD).
A rise in the interest rates would also be negative for ETFs investing in these stocks like the Market Vectors Gold Miners ETF (GDX). Eldorado Gold, Yamana Gold, and Newmont Mining account for 4.10%, 4.20%, and 5.50%, respectively, of GDX’s total holdings.
Fed officials will also have the August report, that’s due on September 4, to review before the much anticipated September meeting on September 16–17.
In the next part of this series, we’ll look at the strength of the US dollar. It directly impacts dollar-denominated assets, including gold.
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