A positive outlook from the US could stop the current gold price boom

The US labor market improved in August, although the headlines paint too rosy a picture. What does this all mean for the gold market? Good news for the US labor market: According to the BLS, the American economy has regained 1.4 million jobs while the unemployment rate fell below 10 percent for the first time in the pandemic era! More specifically, the unemployment rate fell from 10.2 percent in July to 8.4 percent in August, as the graph below shows. What is important is that the decline in the unemployment rate was stronger than expected - and it was accompanied by an increase in the employment rate from 61.4 to 61.7 percent, which makes the decline in the unemployment rate even better. The headline numbers are therefore negative for the gold market. They reflect improvements in the labor market and the ongoing recovery in economic activity after the coronavirus crisis and the Great Lockdown. However, if we dig deeper, we would see a less rosy picture. First of all, the pace of US employment growth slowed down seriously from 2.7 million, 4.8 million and 1.8 million profits in May, June and July as can be seen in the chart below. This suggests that the number of people employed outside agriculture is clearly losing momentum. In addition, the 238,000 jobs were only created temporarily due to the 2020 census. And we must not forget that the unemployment rate is still relatively high, especially when compared to a rate of 3.5 percent before the outbreak of the epidemic. So there is still a long way to go to get back to the values ​​and history prior to the outbreak of the epidemic. Another example that shows that investors should always take the headline numbers with a pinch of salt is when they are first filing for unemployment benefits. They fell sharply by 130,000 in the last week of August to a seasonally adjusted 881,000 (see graph below), but that decrease was caused by a methodological change in the adjustment of the data to account for seasonal fluctuations in employment. What does this all mean for the gold market? Well, the fall in the unemployment rate is negative for the Gold Price as it could restore confidence in the strong economic recovery. In fact, the price of gold initially fell in response to the release of the employment report. However, the fact that US employment growth continued to slow in August is worrying. The slowdown shows the fragility of the current economic recovery and calls into question its stability without the new government's stimulus package. Uncertainty about the pandemic and the economic recovery is likely to sustain demand for gold as a safe haven and diversified portfolio. In the short term, the correction on the gold market could therefore continue. Gold's inability to rebound after the Fed announced its deaf move in the inflation target regime looks pessimistic and could indicate that gold has already priced in a more inflationary Fed. The improved epidemiological situation and the economic recovery could also put some downward pressure on the gold price. However, the fundamental outlook for gold remains bullish. Monetary policy will remain simple, while real interest rates will remain ultra-low or even negative for years. Budget deficits and public debt are skyrocketing. In such a macro environment, gold should shine in the long run. And don't underestimate the power of the deaf side! After all, the Fed admitted last week that the Philips curve is dead, allowing the economy to expand and inflation to rise to higher levels without the need to hike interest rates. In other words, the Fed has promised to keep the federal funds rate near zero for several more years without worrying about inflation. As it has become even clearer that the Fed is more concerned about the weak economy than about inflation, we are all the more certain that real rates will remain at extremely low levels for years to come, which will continue to push investors towards gold .