U.S. Jobs Data: Another Case For Gold, As Usual

Includes: GLD, IAU, PHYS
by: Han Jun Low

Don't you just love the rhetoric on the financial press? I've mentioned this before, how they create straw man arguments for the sole purpose of tearing them down, how they focus the unwary investor on the wrong factors in order to justify any movement in gold, rather than the fundamentals (tapering is certain; gold goes down. It went up? Oh, there was uncertainty in whether tapering would occur, or tapering is unlikely, please forget what I had told you one hour ago) Even when they mention the fundamentals, they change the definitions around and look solely at minor factors (Low unemployment, which was likely caused by lower participation, anyone?).

Well they've done it again! According to Reuters the dollar is down 1% against the yen from a seven-week high against the Euro (What kind of comparison is that? Are we comparing the dollar's performance against the Yen or the Euro? Well, according to my calculations, the dollar bullish index UUP is down .53% from yesterday, and speaking of 7-week highs it's down 3.18% from its July 09th high). According to Reuters, this was because job growth was lower than forecast; another straw man to take the reader's attention from the real reasons. It goes on for several paragraphs, I'm paraphrasing here, but here's the gist:"blah blah tapering blah blah blah tapering blah blah uncertainty"

You see, this job's report comes with many, many caveats, just as the last one had and the one before it. The jobless rate hit a four and a half year low at 7.3% as participation rate falls again.

Reuters: "Despite the downward revisions to previous months, the trend still shows an improving labor market."

Wait, participation falls and that justifies improving labor?! Even your article admits that unemployment went down because of the reduced participation, the lowest since 1978 where fewer married women even had to look for work and a single-income family had been more feasible. And what of these "downward revisions" of previous months, would you care to elaborate (they don't, but I will a bit later)??

Reuters: "The safe-haven yen and Swiss franc gained on concerns about military action against Syria."

So... the Yen is a safe haven in spite of its Fukushima problems that keep getting worse? And is it not commonly argued that the USD is itself a safe-haven even in a war of its own making (Seriously, you guys in the financial press have no idea what's happening at all, this is not even the first time I've caught you at making the same statement to support both a case for and against precious metals)? So no, the USD is weaker, but not because of safe haven appeal resulting from the Syrian war one way or the other. It is also not weaker solely as a result of fewer jobs being created than expected.

Let us get on to the real reason for dollar weakness then. It is strange that Reuters would not elaborate further on the "downward revisions" of previous months. Good thing that info can be tracked down by the inquiring mind: July jobs created was revised down from 162000 to 104000! Job numbers were also revised down in June. Zero Hedge explains that this would place the average below the 200000 threshold reducing the Fed's impetus to taper. I have several alternative theories as to why this would badly affect the dollar.

I would suggest that 1) the data is plainly extremely bad, stupendously bad, 2) that the reputation of data predictions and even current data of the US economy is being called into question, 3) most of the job growth that had occurred was in retail healthcare, restaurants and the public sector (retail and restaurants are low-paying and mostly part-time jobs while health-care and public sector are a drain on resources) and...4) the Fed had never intended to taper in the first place. Indeed, although I would have to call into question the reputability of the so-called economists and statisticians who can so grossly underestimate key figures, this possibility however is much more interesting. Perhaps the statisticians were not in fact grossly incompetent and the Fed had a good idea of these figures in the first place. Taper-talk, would be just that, talk. Although the Fed might believe in generating 'confidence', postponing bad data like this only boosts confidence in the short-run.

You see, when economic data has become systematically positively biased, you are better off betting against good data as well as bad data. Who knows, perhaps even though this month's jobs growth did not even meet expectations, perhaps it will be revised down further next month and last month's data is going to be revised down again. All this causes confidence to be lost in the long run. Add to that the fact that Goldman and JPM are long gold and you have to assume that they are happily in that comfortable position by pure accident (especially when all of their "reports" appear to support a proper US recovery despite month after month of poor jobs data) and not because they knew a bit more than you or I (yeah, right).

Now if the big banks are long gold and the real reason for dollar weakness grows month after month despite the financial reports and assurances by said big banks, I reckon gold can only go up from here. Oh yeah, the 'volatility' I had called for last Saturday? We got it and then some (Spot gold went from 1397 to 1380 to 1397 to 1415 to 1388 to 1367 to close at 1392, with extreme, sharp, random swings everywhere as shown by the chart below). Be ready for more swings, but I believe that there will also be an upward trend next week as fundamentals break through the smokescreen that had been put into place.

Disclosure: I am long GLD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: A diversified portfolio of gold miners.