NFP – Reactions in Gold and Silver Reflect QE3 Expectation

By Roger Baettig | September 07 2012 10:19 AM

The first Friday of every month is the day for the previous month's Job data in the US (expect some times when the first is Friday). The 9/7 NFP release for August showed that 96,000 jobs were added in the month, which was down from July's 141,000 (revised down fro 163,000). The 96K also missed forecasts of 123K. The unemployment rate dropped from 8.3% to 8.1%, though when you break down the numbers, a big factor of this is due to lower participation rate - the 368K that left the workforce. Factory employment was hit the hardest shedding 15,000 jobs.

Sponsorship Link

Here is a chart of the NFP in the past year:

NFP Source: Tradingeconomics

This is not dismal, but still poor data that weighs on the US economic recovery. The latest Bernanke speech in Jackson Hole Wyoming focused a lot on the condition of the jobs market, so traders and investors put a lot of weight on this jobs data. With it being under 100K, there is probably elevated expectation of QE3, which is a very obvious reason why the USD is being smacked across the board.

Gold and Silver are rallying sharply. QE3 has that effect on commodities as QE3 is just another way of saying money printing. Cheaper paper money = more expensive things priced in USD - (XAU/USD:gold, XAG/USD:silver). Money is likely also flowing into gold and silver because there is less confidence in the value of fiat money.

Remember that this NFP release is leading up to next week's FOMC meeting on Thursday (9/13), where we will need to see if indeed the FOMC saw this poor data as a factor to implement QE3 this year.

Gold has broken above 1700, and pulled back. After some volatility ahead of the Non-Farm Payroll release, the market eventually flowed back in and pushed gold to 1730 within the hour after the release. As noted in our previous update on gold, there is upside risk toward the 1790.20 resistance pivot from February, and 2012 high.

Gold 1H chart 9:48AM EDT 9/7/2012

gold

Silver is another precious metal that should gain with QE3 expectation. After a bit of a retracement, XAG/USD rallied sharply above this week's range high. It is knocking at the 33.50 level an hour after the NFP release. The previous silver update noted resistance upside toward the 35.67 and 37.50 resistance pivots. It looks like this outlook is still developing on the back of QE3-expectations.

Gold 1H chart 9:55AM EDT 9/7/2012

Fan Yang CMT is a forex trader, analyst, educator and Chief Technical Strategist for FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.

Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.