The US nonfarm payrolls for August released today from Washington came in at flat against market expectations of a gain of 60,000; today's figures follow reported gains of 117,000 in July 2011 but these have also been revised downwards to 85,000. To make any sensible impact on the current unemployment rate of 9.1% the US needs to be adding about 150,000 jobs on average per month to reduce the level by 0.5% each year and current figures are barely keeping up with population growth in the US - today's figures confirm that the rate remains at 9.1% unemployment. Today's figures are very poor and will intensify pressure for strong policy action - possibly further QE.
In the lead up to the release of the US jobs report markets have been braced for more bad news and have been deeply nervous ; reflecting this, gold had gained nearly $33 to $1860 or 1.8% on the day while stock markets around the world made commensurate losses with the FTSE 100 off 2% as investors went into risk-off mode. Gold's gains underscores its role in financial markets as a safe haven benefiting from a flight to quality when all other asset classes decline. History will almost certainly report that once again gold has performed exactly as it should - that is acting both as a bell-weather to reflect the economic conditions and as a lifeboat for those seeking to preserve value.
Global manufacturing figures released yesterday added to fears that the economy may once again be slowing. Sometimes it's like watching for that familiar uptick sound on a cardiogram to indicate that the patient is still alive, albeit in a coma. Meanwhile the US dollar was relatively sidelined ahead of the data release and was mixed against a basket of currencies.
More unsettling and currently less in the headlines has been the small but steady increase in Italian and Spanish 10 year bond rates which rose by 7 bsp to 5.2% and 8 bsp to 5.09% respectively. Rates in those countries fell from the critical 7% level following ECB intervention before settling at a more manageable 5%. This trend is most certainly not 'your friend'.
Gold has made further modest gains following the release of the jobs data and is trading at $1870 as it absorbs the impact of the figures but with six hours left of trading in New York we would expect gold prices to be nudging the $1900 level before the close. Beyond that we would not be surprised to see gold revisit fresh all time highs in the next few weeks. Yesterday was the first day of the gold buying season - Eid for Muslims, followed by Diwali and the Wedding Season in India – Christmas and then finally the Chinese New Year - it promises to be an exciting one for goldbugs and market watchers alike.
Ross Norman is the owner and chief executive officer of the London-based gold broker Sharps Pixley Ltd.