Unemployment numbers or the job rate have always played an important part in reading the economic barometer in the United States, most of Europe, and indeed all of Western Civilization. It essentially measures the statistical data from all payroll that is not directly associated with farming.
The job rate also plays into a great many other factors beyond simply who is working. It can also serve as an economic bellwether for things like staying ahead of the future on gold movements, job trends, and potential market changes, as well as the growth of certain sectors, just to name a few.
On the face of it, the state of the United States labor market is universally seen as an indicator of the countries overall economic health. Of course, you also still have to bear in mind that it does not directly influence gold’s price per ounce. The job rate on its own cannot drive gold prices higher or lower on its own. It’s simply released each month by the Bureau of Labor Statistics as a key part of their Employment Situation Summary. This document then provides individual investors, investment firms, financial institutions and businesses with a clearer idea of the country’s broader economic health.
Yet there is an important, long-standing link that can be drawn between the unemployment numbers, as well as other job statistics and speculation on interest rates. When United States businesses are generating a significant number of new jobs, it tends to create increased demand for more loanable funds. This, in turn, puts upward pressure on the Federal Reserve’s interest rates. At the same time, the Federal Reserve is also more likely to target a higher federal funds rate, which is an even more direct method for influencing short-term and long-term interest rates.
As any savvy investor who follows the stock market and the price of gold will tell you, interest rates have a profound impact on the price of gold. This is related to gold’s ability to retain its value despite economic fluctuations.
Taking A Closer Look At The Job Rate
The job rate, which is sometimes referred to as the unemployment numbers is essentially a macroeconomic tracking factor that serves as a bellwether for the general health of the economy. When economists, consultants, and financial advisors discuss the impact of the national employment numbers they typically referring to the monthly reported Non-Farm Payroll data for the United States.
Depending on the season or situation they might also make a footnote comment about seasonal unemployment numbers. This often refers to industries that tend to lay people off in the offseason. This might include the construction industry, educators, and other professions that decrease or cease operations at specific times of the year, every year. Unless it is a time of economic instability, these numbers are not factored as seriously into the financial impact, as the vast majority of these people will return to their regular vocation within three to four months.
In general, high non-farm payroll numbers demonstrate that employment is healthy. However, it does not necessarily mean that the average employee in the United States has a high standard of living. It also does not mean that there aren’t structural problems in the economy. There are many factors that could go unknown or undefined. However, it is generally presumed that strong employment numbers are a symptom of a positive and healthy economy.
Economic Values And Gold’s Influence
Historically, gold has managed to maintain its economic value thanks to its unique properties, and visual appeal, as well as it’s practical uses in things like consumer electronics. Despite other rumblings in the economy and investment world, there will always be demand for gold, as well as other precious metals like silver and platinum.
At the same time, it’s also important to note that a portion of the demand for gold might still be driven by larger macroeconomic conditions. After all, it’s no secret that gold always retains its value. This means a plethora of other investors know it can serve as a hedge against the volatility of other investments in times of economic distress.
Essentially, the demand for gold tends to be higher in times where it appears that companies are losing money when the stock market is showing a broad decline, or the dollar is decreasing in value. These factors all contribute to the potential for people to lose their jobs.
The Intertwined Relationship Between The Job Rate, Federal Reserve Policy, And Inflation
Ultimately, the policies of the United States Federal Reserve have a profound impact on the price of gold as well as every other precious metal, including silver, platinum, and palladium. It’s reported data and ability to affect interest rates, as well as multiple business sectors, arguably gives the Federal Reserve more power than just about any other institution on the planet.
Their prominence has the ability to affect gold in particular in the short-term as well as it’s long-term projections. The Federal Reserve effectively serves to guide the rate of growth through the supply of money, which causes swings in inflation. This makes it one of the primary contributors to destabilize asset bubbles in things like equity, real estate, and even bond markets.
Recently Federal Reserve policies have been strongly influenced by two important factors. This comes in the form of the measured United States Unemployment Rate. It is also a measure of the nominal health of American asset markets, which certainly influences the stock market.
When it comes to analyzing the jobs data there is a clear connection between high or increasing unemployment numbers and expansions in monetary policy. In most cases, improving job market signals contractionary monetary policy.
As the unemployment rate rises the Federal Reserve becomes more and more inclined to expand the money supply while also lowering interest rates, which inevitably causes upward pressure on the price of gold.
Conversely, when the unemployment rate decreases, the Federal Reserve is more likely to restrict the money supply as well as raise interest rates. This inevitably decreases pressure on the price of gold.