(Kitco News) – The one bright spot in the U.S. economy has been the labor market; economists note that U.S. job growth has been stellar while the rest of the economy has seen, at best, anemic growth.
However, there are concerns that even this pillar of domestic strength could start to show signs of stress on Friday with the release of January’s nonfarm payrolls report, which would be positive for gold.
According to consensus forecasts, economists are expecting that 192,000 jobs were created in January, well down from December’s impressive gains of 292,000. This would also be the first sub-200,000 print since October – by December the data was eventually revised higher to above 300,000. 
Optimism for the labor market received a small boost Wednesday when private payrolls processor ADP reported slightly better than expected jobs data for January. According to ADP, 205,000 private jobs were created last month, down from December’s job growth of 267,000 but better than expectations of around 193,000.
For the gold market, Bart Melek, head of commodity strategy at TD Securities, said that in the current environment anything below 200,000 will be positive for the gold market in the near-term as it will be raise concerns of growing economic weakness.
However, he added that if employment hits this watermark, it could raise expectations that the Federal Reserve will continue on its current path of higher interest rates. “But the market right now is thinking that you probably won’t see [200,000],” he said.
Currency strategists from BNP Paribas are fairly negative on January’s employment gains, forecasting job growth of around 175,000. However, momentum in the labor market should continue to push down the unemployment rate to 4.9%.
“We expect a solid pace of job gains, which is good enough to push the unemployment rate lower and keep the Fed on track for another 25bp (basis point) rate hike in March,” the analysts said in a recent report.
Currency strategists at Brown Brothers Harriman agree that it is unlikely there will be job growth above 200,000. However, the firm also thinks that the unemployment rate could be key to squash concerns that the U.S. is heading into a recession.
“There is a chance the unemployment rate cut tick down to 4.9%, a new cyclical low,” they said. “Simply stated, a recession in the U.S. requires a rise in unemployment. It has been falling.”
Sean Lusk, director commercial hedging division at Walsh Trading, said that disappointing employment number could help to push gold to near-term resistance at $1,177 an ounce.
However, he also warned that the gold market could also pay close attention to revisions data. Strong revision of the last two previous months could overshadow a weaker than expected headline number.
“Any new talk of rate hikes coming back into the market is going to be negative for gold and stop this rally right in its tracks,” he said.
Along with the revisions and unemployment rate, investors will also need to pay attention to wage growth. So far, wage gains in the U.S have been unimpressive, raising 2.5% for the year, compared to anemic growth in 2014 — this is known among economists as the base effect.
Consensus forecasts for average hourly earnings are expected to rise 0.3% in January, up from no change in December.
By Neils Christensen of Kitco News; nchristensen@kitco.com
Follow me on Twitter @neils_C
