Employment reports: a volatile ride through the gold market

Gold pricing has been like a frenzied carousel lately.

It all started when ADP released the National Employment Report, according to which last month the number of jobs in the private sector increased by 978 thousand. This figure is much higher than the estimate of surveyed economists. Employment was expected to rise by 650 thousand.

The report, compiled by ADP and Moody’s Analytics, is always published ahead of the Labor Department’s Non-Agricultural Employment Report, which is released the next day. Yesterday’s report showed that private employers in the United States have increased the rate of hiring new employees due to pent-up demand, which is a direct result of the rapid recovery of the American economy. While labor and raw material shortages are still reported, affecting the recovery of the labor market, the number of new employees, according to ADP, has exceeded initial estimates.

ADP overestimated private sector employment growth in its April jobs report after underreporting for much of the recovery that began last May.

Reuters

job growth and unemployment rate

MarketWatch also warned of the limitations of the ADP report, noting that it is not the most accurate measure of official employment levels, but ADP and government data are heading in the same direction this year. Economists expect 671,000 jobs to grow.

While many analysts have highlighted the fact that this report may inaccurately predict the ministry’s official information on the country’s workforce, this has not stopped many players and investors from either making money or massively closing their positions ahead of publication.

Last Tuesday, the gold futures contract reached an intraday high of $ 1,920. Gold futures then set a lower low ($ 1,855). However, as soon as the numbers were released, the market sentiment changed dramatically from bullish to bearish.

long term gold futures chart

Given the unanimous expectation of job growth, gold was set to fall as it is influenced by positive economic news or whatever might prompt the Fed to tighten its highly accommodative monetary policy. Instead, we received data that fell short of expectations, and in response, gold bounced up.

Brian Lundin

This spurred the rise in gold, and the net gain in futures was $ 20.80 (+ 1.11%). As a result, gold rose to $ 1.894.10 dollars by the close of Friday’s trading in New York.

a sharp change in the dynamics of a gold futures contract

This clearly shows that traders and investors in the gold market are so eager for information about the forthcoming monetary policy of the Federal Reserve System that their focus on any fundamental events can change the perception and sentiment of the market.

Information on when the Federal Reserve will cut its quantitative easing program and raise interest rates is outlined in published minutes and in Chairman Powell’s press conference after each FOMC meeting. However, because their authority is dependent on data, we know that at some point the Federal Reserve will start scrapping the program and raising the federal funds rate.

Simply put, the Fed’s monetary policy is a floating target and is subject to significant restructuring as the economy recovers.

Nonetheless, the incredible volatility of gold and the jump from bearish to bullish sentiment in 24 hours is proof that the reaction of traders and investors can become excessive at any time depending on the release of the data.

Posted by Gary Wagner Jun 5, 2021 | Translation: Gold Reserve

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