An unexpected bad print in Friday’s Labor Department’s non-farm payroll report for May is gold bullish, according to premiere bullion storage service BullionVault.
After successive months of hobbling, yet hopeful, job creation in the U.S. (though many economist doubted the overall quality of the new jobs added from the depths of the initial shock to the U.S. economy), the Labor Department laid an egg for May when it was revealed that only 54,000 jobs were created, far less than the mean estimate range of 150,000 to 190,000 by analysts.
Those investors, believing that the Fed may pull off a slow recovery, could be rethinking that premise and instead begin fretting about the possibility of a double-dip recession, while others—who never believed that the U.S. economy ever emerged from recession in the first place—may fear an all out 1930s-style depression and food and energy price inflation to make matters worse.
But for gold and gold stocks investors, the latest data are good news, according to Swiss precious metals firm MKS.
“Speculations of a generous third quantitative easing (QE3) package will grow” if a string of subsequent depressed data come in, MKS told BullionVault. “Expectations in the market suggest that gold prices will benefit in the short term by the belief that slowing growth in the U.S. will prompt the Federal Reserve to maintain favorable monetary conditions.”
That means some form of QE3 by the Fed could be inevitable by as early as the third quarter some economists speculate, which will result in a further expansion of the U.S. monetary base and put a strong bid under the yellow metal.
“This is gold-friendly data,” said Credit Agricole analyst Robin Bhar. “In the worst case scenario, we could have a double-dip in the U.S. economy and possibly deflation, which would also help gold.”
The showdown in Greece over its failure to achieve budget metrics attracted safe haven buying of the metal throughout the past two to three weeks, taking the Euro from the high of 1.49 in May to approximately 1.41 against the dollar as well as providing ammunition for firming gold prices above $1,520.
Following the Labor Department’s disappointing jobs number on Friday, however, the euro soared against the dollar to a one-month high of $1.46, or a 2.3% again, before retracing some of the day’s earlier gains.
“The turning point was Greece, and we can suggest Greece is out of the way for the short term,” said Kurt Magnus, executive director of currency sales at Nomura Holdings, referring to reports that the European Union (EU) and the International Monetary Fund (IMF) have agreed to extend the next installment of last year’s €110 billion bailout to Greece.
Now the focus among traders has shifted to the dollar and its lingering problems accentuated by Friday’s dismal economic data and the partisan stalemate in Washington regarding the U.S. federal budget deficit and debt ceiling.
At 11:40 a.m. in New York, gold trades at $1,552.03, up $10.43.