Is gold on the turn? | ADP jobs report loses credibility

Four hour chart

We have been expecting gold to turn down, but it has defied these expectations. We are always looking for trends, and obviously the earlier they can be spotted the better. They are defined by higher highs and higher lows, for an uptrend, or the reverse, lower highs and lower lows for one that is going down.

Weekly chart

The long-term trend for gold has been down, in anticipation of the tapering of Quantitative Easing (QE) in the US, but there has been a medium-term recent uptrend on the back of soft economic reports, which could possibly cause a postponement of tapering. Some market participants believe that these poor numbers are due to the severe weather that has hit many parts of the country and fully expect these indicators, the most important of which are the employment numbers, to show a definite improvement as soon as the weather gets better.

Those of us who would sell gold must wait until it demonstrates that this medium-term uptrend is finished. It is very easy to move too soon, and incur losses while waiting for something like this to happen.

ADP loses credibility

Which brings us to the ADP jobs report that came out yesterday. This private company attempts to anticipate the official jobs figures from the Bureau of Labor Statistics, which come out a day or so later (on the first Friday of every month), but it has not been doing a good job at on this in recent months. The January figures from ADP were much higher than the official Non Farm payrolls report for that month. Now, this month, the ADP figures in the last report have been restated, to 127k from 175k when the report first came out.

All of this is creating a credibility problem for the ADP figures, so much so that when yesterday’s report showed a disappointing 139k new jobs, when 160k is expected by economists, the market shrugged off the apparent bad news and failed to react in the manner it would have done heretofore.

There are signs that the market expects the US economy to pick up. It expects the price of gold to fall and it expects the US dollar to strengthen against such as the Japanese Yen and the Swiss franc. It is prepared to ignore bad news to at least some extent while waiting for this to happen.

All of this could change, depending on the official Non-Farm payrolls report on Friday. This report is always carefully watched, but this Friday’s one will be watched more closely even than most.