Nonfarm Payroll Data Just May Boost the Gold, Silver Market

NEW YORK (TheStreet) -- The price of gold remained relatively flat over the past week, but tomorrow the publication of the nonfarm payroll report may affect gold (GLD) and silver (SLV). Let's see how.

To begin, the SPDR Gold Trust (GLD) opened sharply higher today, up 0.75% to $120.66 per share as of 10:15 a.m. (Don't get too excited: gold prices are down 4.4% over the past month.) iShares Silver Trust (SLV) shot up 1.27% to $18.29. (Silver is down 3% over the past month too.)

In the past, the release of the nonfarm payroll report used to have a negative correlation with the direction of gold prices. In other words, as the number of jobs rise, investors tend to have more confidence in the progress of the U.S economy. Then the demand for investments like gold tends to soften.

This relationship, however, isn't perfectly consistent, as you can see in the table below. Note that dates are listed as Day/Month/Year:


Source: CME, ADP and Bureau of Labor Statistics.

In the first three reports of the year, when the change in employment didn't meet the ADP projections (see the numbers listed in red), the price of gold rallied on the day of the release of the nonfarm payroll report. Conversely, when employment grew and even exceeded expectations (as in the March 7 report), the price of gold dropped.

Overall, the correlation between the changes in employment and price shift of gold on the day of the report's publication is -0.31.

If the correlation holds up, and if the upcoming labor report doesn't meet the current estimates of 179,000 jobs added, the price of gold will bounce back Friday.

In such a case, gold-related investments such as Barrick Gold (ABX) and Goldcorp (GG) are also likely to recover from their ongoing descent of the past several weeks.

Besides the demand for gold as investment, its demand in India is also likely to play a secondary role in the gold market.

Analysts project that the demand for gold in India, the second largest importer of gold worldwide, might pick up in the near future. Those analysts expect the newly elected Prime Minister of India Narendra Modi might cut down the import tariffs on precious metals.

Despite the weakness in the bullion market in the past several months, the gold bullion market might slowly pick up tomorrow if the nonfarm payroll doesn't meet the current market expectations. And if India's policymakers cut the high import tariffs on bullion, this could also play a modest secondary role in pulling up the price of gold.

For further reading see: Gold and Silver Outlook for June

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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