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Ed Reiter, Executive Director,
February 2023 - Week 3 Edition
Traders React to Job Numbers Pushing Gold Down After Big Gains
2023 is a tale of two months, so far. First, Gold rose over $100 per ounce in January as the U.S. dollar continued its late-2022 decline. Then in early February, gold fell sharply from late Thursday, February 2 to early Friday, February 3, mostly on a misleading but seemingly super-bullish monthly jobs report. These short-term traders totally ignored current and future dangers from potential cold (or hot) war rivals China and Russia, both of which pose far more important risks than interest rates or any misleading job reports.
What’s Behind a Flawed Jobs Report Deflating Gold and Silver Prices?
Amazingly, gold fell almost $100 in 24 hours, from a 7-month high of $1,959 on February 2 to a low of $1,861 by Friday’s close, a drop of 5%. Silver fell by a greater percentage (-8.7%), from $24.46 (above its year-end 2022 price) to $22.33 in the same 24 hours. In that way, silver seems even more misunderstood than gold, since the global economy is now recovering far faster than economists had previously expected, and silver is an industrial metal, which means it should rise as the global economy recovers.
The International Monetary Fund (IMF) has raised its global forecast for GDP growth in 2023 to 2.9% (from a previous 2.7% forecast last October) partly due to unseasonably warm winter weather in Europe, China suddenly re-opening trade and the unblocking of global trade channels. The IMF’s forecast for American U.S. GDP growth is up a larger percentage, from 1.0% last October to 1.4% now, so platinum and silver should gain ground when growth increases, as it seems to be doing now.
Instead, both metals fell based on a severely flawed jobs report. In raw numbers, January 2023 saw a LOSS of 2.5 million jobs – yet traders assumed these “517,000 new jobs” would lead to more rate hikes later. Why the wide divergence in numbers? The headline number of new jobs is always technically false. It is “seasonally adjusted” for an estimated number of expected layoffs or hires due to weather or holiday reasons, which may or may not have happened. For this January, the seasonal adjustment number was unusually large, with over three million expected layoffs that did not all occur. Since the raw number of jobs was less, at 2.5 million fewer jobs, they added three million “expected jobs” to 2.5 million “real” jobs and got “517,000 new jobs” - a totally fictional number. The Bureau of Labor Statistics obviously expected more bad weather, more retail layoffs and they did not expect the California higher education strike to end.
In time, these seasonal anomalies may even out, but it just so happened that these fictional new jobs came just in time for President Joe Biden’s State of the Union talk and they blew the gold market out of the water.
The unemployment rate is also almost meaningless, since many tens of millions of able-bodied Americans have taken themselves “out of the workforce” and the jobless rate only counts those “looking for work” as unemployed. Those counted as unemployed are under six million, while those people over age 16 not in the labor force are over 100 million. Some are in college, some are retired or unable to work but more than half are capable of work though not willing to work for whatever reason, especially after COVID-19 and all the new benefits that have sprung up from federal, state, and local governments in recent years.
With several “unidentified flying objects” being shot down over North America in the past week, and as we come up to the one-year anniversary of Russia’s invasion of Ukraine (February 24, 2022) we should be aware that imminent threats coming from Russia and China have not been “priced into” the downward risk in stocks or the upward potential in gold. Wise investors will be wary of the recently “overbought” level of most stock markets and the “underbought” levels of precious metals. I urge you to call your account representative today to learn about the best precious metal products currently available for your portfolio. You will be glad you did!
Consumer Prices Increased Sharply in January
The first month of 2023 opened with a shocker in the inflation department. Two more reports will come out later this week – the Producer Price Index (PPI) on Thursday, and the Personal Consumption Expenditures (PCE) Index, which the Fed follows most closely, on Friday – but the Bureau of Labor Statistics reported a sharp jump in the rate of inflation during January 2023 over December 2022:
The BLS said the CPI rose 0.5% in January after rising just 0.1% in December. Over the past 12 months, the CPI has increased 6.4%. Subtracting food and energy, the “core” CPI rose 5.6% over the past 12 months, since energy rose 8.7% and food rose 10.1% in a year. The BLS further said, “The index for shelter was by far the largest contributor to the monthly all items increase, accounting for nearly half of the monthly all items increase, with the indexes for food, gasoline, and natural gas also contributing.”
We’re clearly not out of the woods on inflation, so this will likely keep the Fed raising rates even higher.
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