The strength of the US economy is an important consideration for investors and policymakers. The February jobs data report released on Friday was thus a warm welcome after the disappointing employment figures of the previous months. With the rate of job creation in the US back in line with expectations, the Federal Reserve is expected to proceed as planned with the tapering of its quantitative easing program.
There had been worries about how the gold price might fare as the quantitative easing wound down. However, a few emerging favorable factors have come together to make gold one of the stellar performers so far this year.
Economic Recovery Back on Track?
The Federal Reserve uses the strength of the labor market as one key gauge for determining policy. As a result, the jobs data reports released on the first Friday of each month have drawn significant attention in recent months.
The disappointing employment data reports from December and January have cast a shadow over the US economy, with only 74,000 and 113,000 new jobs added, respectively. The cold snap over these months was no doubt partly to blame, but the figures also raised wider concerns about whether the economic recovery was faltering.
But on a positive note, the news on Friday that US companies hired 175,000 new workers in February was met with relief, buoying hope that the economy has bounced back from a weak patch. The positive data also gives the Federal Reserve the green light to go ahead with its cuts to quantitative easing. The Federal Reserve bought $85 billion in bonds each month for most of 2013 but has since trimmed its monthly purchases to $65 billion, with further reductions in the works.
Gold To Benefit From Slow Tapering
Gold as an investment would benefit from a slow pace of tapering. Yet, gold investors have largely shrugged off worries about the impact of further cuts to bond buying by the Federal Reserve. After bouncing back from a brief dip below $1,200 in December, the gold price made impressive gains to close at $1,350.40 on Thursday, near a four-month high.
Following a surge in price over the past two months, gold had been due for a period of price correction. Yet the gold price did not retreat far, closing on Friday at $1,339.50 with initial losses pared back in later trading.
More Surprises May Be Lurking
The latest jobs data may be reassuring, but the economy is likely to continue to confound experts. Despite the jump in the number of fresh employees, the unemployment rate crept upward from 6.6% to 6.7%. Along with the wobbly jobs market, there are other possible stumbling blocks for the economy, such as the slow demise of quantitative easing and the inevitability of higher interest rates. Possible conflict in Ukraine as well as in other potential hotspots is a further hurdle that could derail any progress with the economy.
The economic recovery has yet to fully heat up after the impact of the stormy winter, and it may not take much to put the economy on ice again. Amidst all this, gold has become a safe haven from uncertainty over the direction of the US economy, as well as trouble elsewhere. The long-term prospects for the precious metal are being increasingly determined by factors other than the US economy, such as consumer demand in Asia. With gold regaining its popularity with investors who shunned it en mass in 2013, the shiny metal is one of the few bright spots in uncertain times.