Thursday, 10 November 2011

Gold "beware": Better than expected initial jobless claims at 390.000

The number of US citizen filing for unemployment benefits fell last week  to the lowes figure recorded in 7 months. They printed at 390.000 (in seasonally adjusted data), down 10.000 from last week's figure. There were 398.753 initial claimants under state programs, without any adjustments, in the week ending with November 5, an increase of 29,106 from previous week. According to the Bureau of Labor Statistics the official number of unemployed citizen is still at 13.9 million, adding up to an unemployment rate of 9.0%. There is simply not enough job creation and not in the right sectors.

Why does this matter ?

These figures are closely followed by investors and traders as they are an important gauge of the United States' economic health. A better than expected initial jobless claims means that there are less freshly unemployed people asking for state benefits, which some might interpret as a good sign towards the economic recovery. The continuous jobless claims (people receiving state benefits, except the extended state benefits) are still at the record high level of 3.62 million and the number of people receiving extended state benefits (long term unemployed) is 3.53 million.

The unemployment rate does not count underemployed people such as the ones working part-time for economic reasons (involuntary part-time workers) which were as many as 8.9 million in October. There are also 2.6 million people marginally attached to the labor force. These are not in the labor force but wanted and looked for a job in the past 12 months. They are not plugged in the unemployment formula because they have not looked for a work in the past 4 weeks. Among them are 967.000 discouraged workers who gave up job-hunting. To illustrate the development here are two revealing charts courtesy of CalculatedRisk blog:

What does this mean for gold ?

A percieved better than expected figure means a risk-on trade for investors and short term speculators, who switch from relatively safe assets such as US Treasuries and Gold to more risky assets such as the US stock indices (S&P500, Dow Jones, NYSE, RUSSEL). This entails a fligh of capital from gold and a subsequent fall in prices.

After the initial jobless claims figure hit the news, gold fell from its yesterday's previous high of $1802 to $1749, a more than 3% drop. I personally don't think this is going to last long and I have already scaled in 30% of my position at $1760 as mentioned in one of my previous posts. I`m expecting Gold to hit a major resistance level at $1727 and bounce back. If that level fails to hold I expect it to find its way to $1645.

PS: Update on USD/HUF

Seems I was wrong about the US dollar - Hungarian Forint currency pair and I was thrown out of my positions as the price hit the stop-loss level of 227.20 mentioned two days ago. Hungary is in worse shape than ever as rumors of a Hungarian rate hike caused the Forint to devaluate against all major currencies. As an investment advice, once out, stay out until de picture gets clearer.

Take care!

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