Published 11/5/20 in the DataTrek Morning Briefing
Three Data items today:
#1: As we recently highlighted, exchange traded fund investors around the world are driving marginal gold demand and therefore near-term price moves.
That trend is clearly visible in this chart from the World Gold Council’s latest ETF flows commentary. It shows gold prices (gold-colored line) against the amount of gold purchased by ETFs in troy tons by region (North America in purple, Europe in green, Asia in red). The time frame is monthly back to October 2018:
The WGC made the following useful points in its report:
- October saw the lowest gold ETF inflows of the year. Net purchases totaled 20.3 tons, well off the 2020 monthly average of 110.6 tons.
- Virtually all of October’s demand came from European funds (20.2 tons), with small adds from North American ETFs (1.8 tons) and Asian funds (1.1 tons) offset by rest of world redemptions (2.8 tons).
- Two UK based gold ETFs, a Wisdom Tree physical gold/pound hedged product and an Invesco physical gold fund, were responsible for most (13 tons, 65 percent) of European regional demand.
Takeaway: the price of gold has been treading water for 3 months now, with ETF demand offsetting declining jewelry/industrial demand, but October’s fund flows show investor interest has been waning of late. We assume fears of a hard Brexit drove UK fund demand last month, and that became gold’s marginal bid in October. Given a wide range of macro uncertainties going into 2021, we believe gold ETF demand will remain reasonably strong and therefore continue to like the asset.
#2: Looking ahead to tomorrow’s US Employment Situation report, the latest labor market datapoints have not been particularly reassuring. The ADP report of jobs added in October out yesterday missed by 235,000 (365,000 reported, 600,000 expected). Today’s Initial Claims report of 751,000 was 23,000 higher than expectations and basically flat to last week on a non-seasonally adjusted basis (only 543 fewer reported new claims).
Our go-to dataset to understand US joblessness is the Google Trends search volume chart for “unemployment”. This captures the number of online queries for any search that includes that word. Worth noting: “unemployment” searches since March 1st are extremely common, almost as frequently googled as “Trump” over this timeframe and 3x more searched than “Biden”.
Here is the Google Trends chart of US search volumes for “unemployment” from March 1st to today (peak of 100 towards the left, dated April 13th, current reading of 31, dated November 2nd):
Two points worth noting:
- The overall trend is still clearly downward. Those peaks you see in this sawtooth pattern are Mondays and the troughs are Saturdays. We’re making lower highs and lower lows almost every week.
- While current search volumes are two thirds lower than the peak, they are still 10x higher than pre-pandemic levels.
Takeaway: based on this data, we expect tomorrow’s Jobs Report to show only modest improvement in US labor market conditions.
#3: We listened to Chair Powell’s press conference this afternoon and, while it was largely routine, questions about the need for further fiscal stimulus nudged us to look at labor force participation (LFP) once again. The chart below shows the percent of working age Americans (25-54 years old) who are either employed or looking for work going back to 1990:
Two brief comments on this:
- Recessions now damage LFP for far longer than just the period of any economic contraction. You can see how the 1991 recession (leftmost gray bar) did not really ding LFP because US female participation was still rising in the 1990s (it peaked in 1999).
But look at the declines after the 2001 recession (thin gray bar) and most notably after the Great Recession (thick gray bar). In both cases LFP did not bottom for years.
- Increasing working aged LFP was a great, if largely untold, story of the 2016 – 2020 economic expansion. After 15 years of structural decline, it improved 2 points and finally returned to pre-Financial Crisis levels. And that was during a period of record low unemployment, which makes it an even more impressive statistic.
Takeaway: As you can see from the LFP data at the far right of the chart, working age participation has recovered modestly but still sits at multi-decade lows. As much as markets may focus on the unemployment rate in tomorrow’s Jobs Report, participation is equally important when considering how quickly the US labor market can recover from the Pandemic Recession and help the economy regain the footing it enjoyed in 2019.
World Gold Council ETF report: https://www.gold.org/goldhub/data/global-gold-backed-etf-holdings-and-flows