Strong Payrolls Didn’t Stop Silver From Rallying Above $22

Even though November nonfarm payrolls surprised positively, silver prices still jumped above $22.

The US labor market added 263,000 jobs in November, according to the BLS (see the chart below). The number was lower than in October (+284,000) but came above expectations (+200,000). The job growth has averaged 392,000 thus far in 2022, despite the Fed’s jumbo hikes in the federal funds rate seen this year. What’s more, the unemployment rate remained unchanged at 3.7%, as the chart below shows. Hence, the U.S. labor market showed great resilience during the Fed’s tightening cycle .

Strong Payrolls Reignite Fears of Aggressive Fed

From the fundamental perspective, higher-than-expected nonfarm payrolls in November are bad news for the precious metals . They reignite concerns about an overdoing by the Fed (thus, stock prices fell) - a strong labor market gives the US central bank room to continue its tightening of monetary policy . After all, job creation continues while the unemployment rate remains stable and wage inflation is stronger than expected by the economists. Thus, the Fed has all reasons to continue interest rate hikes.

Having said that, the 50-basis points raise, not the 75-basis points increase, is still the most likely outcome of the upcoming FOMC meeting. Hence, the recent Employment Situation Report doesn’t change the outlook so much, especially given that the unemployment rate didn’t go up because people dropped out of the labor force.

Implications for Silver

Silver prices declined initially in response to the surprisingly strong nonfarm payrolls in November. However, they rebounded quickly and not only returned to their previous level but jumped above $22, as the chart below shows.

Hence, silver reacted better than gold , which slid from $1,800 and didn’t get back. As silver’s rally outperformed gold, the gold/silver ratio declined to its lowest level since March 2022. It was actually the best week for silver since August 2020 and its price achieved its highest level since June 2022. And given that the Fed is going to slow down the pace of interest rate hikes and that a recession is coming, silver’s future might be bright, even if it may still struggle somewhat in the face of the interest rate hikes.

Arkadiusz Sieron, PhD