After a mad dash to the upside for gold and a similar dash to the downside for the U.S. dollar, investors are getting their bearings once again. April's disappointing jobs report refocused everyone on the potential economic slowdown and a still-dovish Fed. Brien Lundin of Gold Newsletter paints the big picture of how speculation over the Fed's actions to raise interest rates is affecting gold and gold equities, and he discusses two companies that have not appreciated as much as their peers but are likely to soon catch up.
Pershing Gold's Growing Resource Base
Gold and gold stocks have maintained their gains since early May. And it's largely due to a significant downside miss in the nonfarm payrolls report for April: Against consensus expectations of 205,000 jobs created in the month, April's number came in at just 160,000 jobs. It wasn't quite as bad as the headline number may indicate: Average hourly earnings rose by 8 cents (0.3%), while the average work week added 0.1 hour.
“Gold and gold stocks have maintained their gains since early May.”
Still, in an interview recently on CNBC, Atlanta federal reserve President Dennis Lockhart volunteered a 200,000-job benchmark as a level that would be conducive to further Fed rate hikes. The miss on jobs, combined with dismal, 0.5% GDP growth for the first quarter, should put a stake in the heart of hopes for a rate hike at the Fed's mid-June meeting.
Moreover, Britain's Brexit vote—coming a few days later on June 23—remains a formidable barrier to any Fed action in advance of the vote.
In fact, expectations for the timing of the next hike have now been pushed well into 2017 before we get to a “50/50” projection.
So, the market was a bit dizzy after the sharp run higher in the metals at the end of April. Investors had temporarily lost sight of why the metals were rising.
Said reason being the persistent weakness in the U.S. economy that seems to be constantly postponing any Fed action, or at least any Fed moves to raise rates. There also remains the lingering possibility that, should GDP growth slip into the negative zone, the Fed may actually move to ease monetary policy again.
