FxWirePro: Bullish CME bullion trades perspectives on constructive US employment data

Gold surged to $1315 today as an immediate reaction to the US unemployment data release but it couldn’t sustain at that level to pare the early gains. The price of the precious yellow metal is currently trading close to $1,310 per troy ounce.

The dollar now cannot afford to complain about a lack of solid fundamental data, as today’s labor market report is confirming the same. The US unemployment rate fell to 3.9% in April 2018 from 4.1% in the previous month, and below market expectations of 4%, unemployment rate assumed by the Fed of 4.5%.

It has been the least rate since December 2000, as 236 thousand people exited the labor force. The number of unemployed decreased by 239 thousand to 6.35 million and employment was almost unchanged at 155.18 million. The rise in new jobs, which was distorted the previous month as the result of special effects, will normalize once again.

Despite the increasingly tight labor market the creation of almost 200k jobs a month, as was the case on average over the past six months, remains very decent. Everything all told the Fed will feel confirmed in its approach as a result of April’s labor market report

With our FX stance of pulling backward its bearish USD view, we now reckon that the persistence of USD strength is here to stay.

As such, we recently boosted our gold price forecasts and recommended length in Dec’18 CME gold.

We saw the early March pullback as an advantageous level to add length and lower our average entry cost.

Went long CME gold for Dec’18 delivery at $1,352.80/oz in February. Added an equivalent unit at $1,327/oz in March, for a new entry level of $1,339.90/oz for a trade target of $1,540/oz with a stop at $1,273/oz.

Stay long CME silver for Dec’18 delivery: On the back of upward revisions on gold, we have further boosted our silver forecasts and, amid a broader medium-term precious metals rally, see the potential for silver to outperform gold as the XAU/XAG ratio moves lower toward 70 over the second half of the year.

On the fundamental side, silver’s linkage to industrial demand makes it more exposed to a late cycle demand thrust, which should also boost its pricing prospects, if anything.

As such, we look for silver to break out higher over the medium-term, particularly given its much cleaner investor positioning.

Added long Dec’18 silver at $17.10/oz in February. Added an equivalent unit at $16.59/oz in March, for a new entry level of $16.85/oz for trade target of $19.37/oz with a stop at $16.00/oz. Courtesy: JPM

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