Despite years of quantitative easing programs around the world by major central banks, the latest unemployment data shows that easy money policies are not providing the expected boom to the job market. However, central banks have sparked a strong performance in precious metals and the mining industry.
According to the employment report released by the Labor Department on Friday, nonfarm payrolls increased by a seasonally adjusted 163,000 in July, the largest jump since February. The results also topped estimates of about 100,000 and represented a clear increase from a downwardly revised 64,000 gain in June. Wall Street cheered the results as equities rallied across the board, but the details were less impressive. The headline unemployment rate ticked higher to 8.3 percent and has now been stuck above 8 percent for 42 consecutive months. Anticipating more easing from the Federal Reserve, gold and silver also rallied on the news.
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The quality of the net 163,000 seasonal gain is also in question. According to Zero Hedge, the Bureau of Labor Statistics added 377,000 jobs for seasonal purposes. It was the largest seasonal adjustment in the past decade for the month of July. The birth death adjustment, which seeks to account for jobs created by new businesses, but tends to overstate job creation, contributed 52,000 jobs for July. In comparison, the adjustment only generated 5,000 jobs in the same month last year. Combining the seasonal and birth death adjustments, 429,000 jobs added to the U.S. economy in July were “based on purely statistical fudging.”
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Furthermore, the Household Survey showed that part-time jobs increased by 31,000 last month, while full-time jobs decreased by 228,000. Although the headline unemployment rate reads near 8 percent, a broader measure of unemployment by the BLS, which includes includes everyone in the headline rate, plus people who are either employed part-time but prefer a full-time position, or want work but have stopped looking, increased to 15 percent in July.
The developments in the unemployment picture is the latest example of how central bank intervention merely extends and pretends, and does not resolve insolvency or unemployment issues. However, the numerous stimulus programs have caused a boom for precious metals. Since December 2007, the price of gold and silver have both doubled. Gold has increased from $800 to about $1,600, while silver prices have jumped from $14 to almost $28. Hard assets such as precious metals are often viewed as a safe-haven for investors, because they can not be easily printed by central banks.
While Ben Bernanke and company have been unsuccessful in sparking a jobs recovery in the general market, their contribution to higher commodity prices have aided the mining industry. Using data from the BLS, U.S. Global Investors points out that since the end of December 2007 through May of 2012, the best job growth has been in the mining industry, with a rate of 16 percent. The June unemployment rate for the mining industry was 4.8 percent, the lowest among all industries.
Gold and silver miners have been in a downward trend for much of the past year, but with economic conditions and markets begging for more quantitative easing, we believe the upside potential greatly outweighs the downside risks. If you would like to receive professional analysis on miners and other precious metal investments, we invite you to try our premium service free for 14 days.
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Disclosure: Long EXK, AG, HL, PHYS