Gold Face Plants On “Everything Is Awesome” August Jobs Report

The August Jobs Report has just been released, and everything is awesome in the economy! Silver is reacting better than gold right now. Here’s an update…

The Bureau of Labor Statistics just released the August, 2018 Jobs Report.

Recall the consensus estimates:

Also recall the unofficial Presidential promoting of the economy from yesterday:

Fresh off the presses, according to the government, the total jobs created in August beat expectations and came in at 201,000

The unemployment rate remained unchanged at 3.9%

Average hourly earnings also beat expectations coming in at a 2.9% year over year increase in earnings.

Here is the initial knee jerk reaction in gold & silver:

Recall that the initial reaction can take minutes to an hour or so to either confirm the direction, usually via consolidation, or to change direction, which would be seen in a reversal.

Here’s a look at the volume in the first minutes at and following the release:

We are talking about more than 2.3 million ounces of gold with a notional value of $2,795,520,000 “bought” and (mostly) “sold” in just the first five minutes.

The knee jerk reaction in the dollar was to pop:

Of course, right now, the dollar and the metals are moving opposite each other, so this is to be expected.

Back to the Jobs Report.

Commentary and charts from ZH:

While many were expecting a potential downside surprise due to the ‘residual seasonality’ of August payrolls (discussed previously), moments ago the BLS reported that after a weaker than expected July (which was revised lower from 170K to 153K), August payrolls came in strong than expected at 201K, above the 191K consensus estimate.

The revisions were less exciting: With the June revision down from +248,000 to +208,000, and the change for July was revised down from +157,000 to +147,000. With these revisions, employment gains in June and July combined were 50,000 less than previously reported.

But as we noted in our preview, while the payrolls number is generally ignored by the market with the unemployment rate near all time lows, and which in August was 3.9%, just above the 3.8% expected…

 

… what prompted the spike in the dollar, and the lower  kneejerk response in risk assets, was the average hourly earnings print, which came in scorching hot, relatively speaking, rising 0.4% last month, double the 0.2% expected, and 2.9% on a Y/Y basis, the highest going back to 2009.

 

As a reminder, it was the “hot” January hourly earnings print that according to many prompted the sharp selloff that Friday that cascaded into the VIXtermination event the following week. Is the market about to have another similar ugly reaction now that wage inflation, and the Phillips curve, appears to finally be making a comeback?

 

Putting it all together, what can one conclude?

Peak Trump.

Let’s look at just one measure to see why – the unemployment rate. You see, when the economy is as good as it can get, the unemployment rate will be as low as it can get. It is hard to get much lower than where we are right now at 3.9%, so that means the next major move in the unemployment rate will be up, which will be during the time of a recession after “the longest stock market bull run in American history”.

So yeah, everything is awesome right now, taking the numbers at face value, but the punch bowl has been refilled so many times during this party that the hangover is going to require professional medical attention.

That professional medical attention will be the Fed printing up money, the government giving away money, and if they both get their way with it, negative interest rates and a cashless society.

None of what is on the horizon is good.

And nobody is preparing for the economic storm on the horizon.

Certainly not by buying protection in gold & silver.

We see that thirty minutes in, the bounce in gold & silver has failed, and the momentum of the initial knee-jerk continues:

Is today the day they succeed in getting silver to close below $14 to some sort of 13-handle?

Maybe.

Or is today the day we finally see a reversal?

That’s likely too.

And one hour in, we see that silver has now climbed back up to nearly unchanged:

Gold has recovered nearly half of the plunge.

Why is today the day we could see a reversal and a possibly even closing out “on the highs” of the day?

Here’s the thing to understand –

All things considered, we have a CPI (inflation rate) that is running above the Fed’s stated goal to devalue the dollar by 2% per year (they call it a 2% inflation target). Even the Fed’s preferred inflation gauge, the PCE, is running above the inflation target, or right at it, depending if one is looking at the “headline” number or the “core” number (which does not include energy prices or food prices). We also now see, just today, that wage growth continues to come in above the rate of inflation. Yet the interest rate policy by the Fed is behind the curve, with the Fed Funds Rate being in a float between 1.75% and 2.0%.

Therefore, we can conclude two things:

  1. The government can no longer hide the fact that inflation is on the rise (gold & silver are the ultimate hedges against inflation).
  2. As the Fed falls behind the curve, “real interest rates” (inflation rate minus interest rate) are becoming even more negative, and negative real interest rates are good for gold & silver (Gold & silver retain their purchasing power whereas in a negative interest rate environment savings in the bank lose their purchasing power).

Analysts, pundits, traders and investors will eventually figure this out.

However, most of the people have to be wrong most of the time. That’s just how it goes. In investing, in life, and in everything really.

For us gold & silver investors, it is a good thing that most of the people hate gold & silver right now, and most people see no need or reason to own it.

The people will eventually figure this out.

It is only a matter of time.

Stack accordingly…

– Half Dollar


 

About the Author

U.S. Army Iraq War Combat Veteran Paul “Half Dollar” Eberhart has an AS in Information Systems and Security from Western Technical College and a BA in Spanish from The University of North Carolina at Chapel Hill. Paul dived into gold & silver in 2009 as a natural progression from the prepper community. He is self-studied in the field of economics, an active amateur trader, and a Silver Bug at heart.

Paul’s free book Gold & Silver 2.0: Tales from the Crypto can be found in the usual places like Amazon, Apple iBooks & Google Play, or online at PaulEberhart.com. Paul’s Twitter is @Paul_Eberhart.

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