Following this morning’s release of non-farm payrolls data for April, one could certainly characterize the reaction among various markets as being “mixed.”
According to the U.S. Department of Labor, the country added 223,000 jobs last month while the unemployment rate ticked lower to 5.4 percent-the lowest level in seven years. The less talked about “participation rate”, which indicates the percentage of working-age people who are employed or actively looking for work, came in at 62.8%- matching the lowest since 1978.
Stocks cheered the headline number, however, and SP500 futures immediately rose reclaiming the 2100 level. The US stock markets are within striking distance of all-time highs yet again.
Gold prices also got a lift after the release, while bond prices rallied….
Wait a minute. If stocks are moving solidly higher, shouldn’t bonds and gold be moving lower? After all, one could certainly make the argument that if risk appetite is high based on this “good” number, perceived safe haven assets like bonds and gold would likely be moving lower. Yet they are not.
If that isn’t a mixed message, I don’t know what is…
Today’s non-farm payrolls data has been characterized as a data piece that could potentially sway the Fed one way or the other. While a good number may bolster the case for higher rates, a lousy number may be seen as dovish.
Looking at how markets are reacting, it appears that the dovish camp is gaining more support. And if that is in fact the case, what does that tell us?
In a recent post, we discussed how the non-farm payrolls data for March as well as revisions to previous months could either be seen as an anomaly or an indication of underlying weakness.
While today’s data was essentially in line with expectations, one cannot ignore troubles that have been seen elsewhere in the economy. Troubles in areas like corporate profits and manufacturing. Troubles that do not appear to be going away…
The fact is-The economy is too weak to withstand a series of rate hikes.
A June rate hike appears to be off the table. Perhaps September will now be the target for an initial hike of 25 basis points. One must realize, however, that at this point, it is not so much the timing of the first rate hike, but rather the expected pace of rate hikes to come.
One could certainly make the argument that the Fed may hike rates in order to look credible. One could also make the argument that the likelihood of any future hikes may be some time off.
We would argue that, as far as gold is concerned, it really doesn’t matter… The gold market has discounted an initial hike of 25 bps for some time.
There is an old saying among investors that still holds true today. “The market is always right.” When you think about this, it is very powerful.
We believe that gold stands to do well, and do so despite any hikes by the central bank. Looking at price action in gold in recent months, it certainly appears that gold investors like the yellow metal at current levels, and are happy to buy gold for the long-term while it is “on sale.”
The gold market has clearly been a “buy the dips” market for some time. Attempts to drive prices lower in recent months have all been met with buying demand. The market is always right…
It is also important to keep the bigger picture in mind. When looking at gold as an investment, one needs to see the forest through the trees. In other words, one should not be concerned with the day-to-day or even monthly fluctuations in gold prices, but rather the value that gold can provide over the long run.
Assuming that interest rates do in fact go up, this would simply be another possible reason for stocks to go down. Equities have been moving higher for seven years now, and the average bull market lasts five years.
At some point, whether it’s more attractive interest rates or Greece defaulting or any other possible catalyst; stocks will likely falter. When they do, they could do so with conviction.
The question you should be asking yourself is: Do I want to wait until that happens before preparing for the future or do I want to be proactive and prepare for the future now?
The economic climate going forward is uncertain. While the U.S. may or may not be recovering, there are plenty of other issues that will likely remain in the fold. Weakness in Europe and China, for example, could keep central banks busy with stimulus for some time to come.
The reality is that all of this is simply noise. Markets can and do change. One must be willing to change with them.
Gold and precious metals have stood the test of time. They have proven themselves as a reliable store of value in good times and in bad. Gold is being bought by savvy investors on dips right now. What does that tell you?
We believe that when the great asset shift begins, gold and silver could stand to benefit significantly. Start thinking about your financial future today.
Right now could prove to be one of the most opportune times to help secure your financial future. We recommend you take advantage of it.
To learn more about how gold and precious metals may be of benefit and how easy it is to incorporate them in your portfolio through either direct delivery or an IRA or 401k rollover into a Gold IRA, contact an Advantage Gold representative today.
Tags: gold market, market signals, Stocks, US Economy