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There is a great deal of debate about US unemployment on the HC gold forum. This puzzles me.
In my days as a trader, it was an unwritten rule not to make trades in response to employment data because employment data was a delayed indicator, and useful only for confirming changes in the economy that has taken place up to nine months earlier. By the time employment data is released, the market has moved on.
But it is the connection between changes in employment and the price of gold that really baffles me. I can't see one.
Whether we agree that the actual unemployment rate is 5% or 10% or 20%, we can agree that the employment condition in the US have been very poor since 2009. The fact that the Fed has kept interest rates at near zero for nearly seven years is indicative of the seriousness with which the Fed takes its mission with respect to "full employment".
During that time the price of gold has gone from $800 to $1900 and then back to $1100.
Is there a connection?
I collected monthly changes in US non-farm payroll back to January 2007 and monthly changes in the price of gold over the same period and ran a correlation analysis.
The result was 0.026.
What does that mean? If falling US employment was good for the price of gold in every observation, the correlation would be -1.0. If the rising US employment was good for the price of gold in every observation, the correlation would be 1.0.)
0.26 is statistically insignificant. If you were looking for a way to predict the direction of movements in the price of gold, tossing a coin would be as effective.
So why is so much energy being wasted discussing US employment data?
