If you caught our end of week Gold Bullion Bulletin last Friday, you’ll know that there is growing evidence that the U.S. labour market, which has proven remarkably resilient so far, is starting to cool.
Last week’s figures came as a shock to analysts, with a 25,000-person increase in new unemployment claims surprising to the upside. Economists had expected that figures would remain broadly the same as the previous week.
The latest data, issued by the U.S. Labor Department yesterday (Thursday) has confirmed a continuation of this pattern with an additional 9,000 unemployment claims added to the previous week’s tally of 215,000 claims. This figure again surprised economists, with projections prior to the official data calling for around 213,000 new jobless claims rather than the 224,000 recorded. The four-week moving average was also up, as was the number of workers filing continuing claims as they struggled to find new roles. That figure increased by a total of 70,000 people.
The uptick in unemployment figures comes at a crucial time as the Federal Reserve mull over the timing of interest rate cuts. At the conclusion of the first monetary policy meeting of the year on Wednesday, chairman Jerome Powell indicated that a sudden deterioration in labour market conditions was one of the primary factors which could hasten a move to cut interest rates.
While Powell said that the committee did expect to cut rates this year, he refused to be drawn on when those cuts may commence. This has dampened the hopes of some, who were hoping to see cuts ushered in as early as March. He said, “Based on the meeting today, I would tell you that I don’t think it’s likely that the committee will reach a level of confidence by the time of the March meeting to identify March as the time to do that. That’s probably not the most likely case, or what we would call the base case.”
However, Powell also noted that inflation is dropping and rising unemployment could hasten the timeframe for a policy reversal, explaining, “If we saw an unexpected weakening in the labour market, that would certainly weigh on cutting sooner, absolutely.”
With job losses appearing to be creeping up, we could be closer to that marker than expected. This is good news for gold. The bulls are holding steady comfortably above the £1,578 ($2,000) marker but any hint of a weakening economy could cause an uptick in risk aversion and from there, a run to new price highs. Don’t wait for prices to accelerate.
