The monthly jobs report is probably the single most observed report in the United States right now. Issued by the US Labor Department, the jobs report is generally viewed as a measure of economic health, and it has largely been used as a deciding factor for the Federal Reserve’s economic stimulus program.
By and large, inflation is typically a top priority for economists, but a weak US economy means that rising prices are less of a concern. As such, the jobs report, which comes out on the first Friday of every month, is one of the largest influencers to the Fed’s monetary policy.
With that said, the Federal Reserve will have much to consider following the recent reports of lower than expected jobs data. Bond buying will likely continue to add further support to a shaky economy, which may stem a potential rise in interest rates and help gold prices continue to climb off their recent lows.
Growing Concerns About the US Jobs Market
The New Year started out on a sour note for the US economy. Data out last week showed that only 113,000 new jobs were added in January, which fell short of the expected 185,000. This is the second consecutive month of disappointing jobs data, following a lackluster December report revealing only 74,000 new jobs were added in the last month of 2013.
Despite the recent disappointing job figures, it has not all been doom and gloom for the US economy. One small ray of hope shines as the unemployment rate reportedly fell from 7.0% in November to 6.6% in January. Yet, this decline was mainly due to a large number of Americans leaving the workforce, as opposed to finding work.
The underperforming job market will weigh on the mind of new Fed Chair Janet Yellen, who has the unenviable job of cutting back the support program for the US economy. The Federal Reserve bought $85 billion worth of bonds each month in 2013 as part of measures to boost the US economy. The amount of monthly bond purchases was reduced by the Federal Reserve by $10 billion in both December and January. Such tapering is expected to continue in 2014, but the tempo of change will depend on how the job market fares over the upcoming months.
Gold Set to Benefit with Slower Tapering
The Federal Reserve’s intervention in the bond market heavily influences the outlook of investors. Experts say the signs point to prolonged bond purchasing, which has eased concerns about further tapering. As a result, prices on bonds have held firm, bringing yields on 10-year US government bonds to below 2.7% for the first time since November.
The gold price has also benefitted from the expectations of slower tapering. Fed bond purchases typically weaken the dollar and suppress long-term interest rates, thus boosting gold’s appeal as a portfolio hedge. As a result, gold is up by more than 4.5% since December, while other investment options, such as equities, have struggled.
It remains to be seen whether the jobs market is going through a temporary rough patch or if the economic recovery is truly faltering. Either way, the Federal Reserve will likely remain cautious as the delicate state of the US economy rests in their hands. The future may be uncertain, but gold remains an investor safe haven.