Friday’s unemployment numbers from the Department of Labor could have a major effect on the upcoming Presidential election.
As it stands right now, the Presidential race is a dead heat, and with cancelled campaign stops by both candidates due to the aftermath of the Hurricane, any bit of economic news good or bad could sway any undecided voters one way or the other. Job creation has become the number one issue for many voters throughout the country.
It’s bizarre that the jobs numbers can wield so much influence, given that they often bear little relation to what’s actually happening in the economy. The fact is it’s just plain difficult to measure in real time how many jobs the economy has produced in a month. When the Bureau of Labor Statistics estimates the change in nonfarm payrolls, for example, it is trying to pin down a tiny shift, a matter of thousands of jobs, in a labor pool of more than 130 million people.
Even with a sample of about 141,000 employers, it is a difficult task. Whatever surprises the November 2, 2012 report may contain, in my opinion, it won’t change the broader state of the U.S. economy. Since the beginning of the year, nonfarm employers have added an average of 146,000 jobs a month, and while this is enough to make a small dent in the unemployment rate, the three-month average of which has fallen to 8.1 percent from 8.5 percent. The slow rate of recovery, typical for the aftermath of a full-blown financial crisis, is threatening to do permanent damage.
HOW TO TRADE?
How can traders take advantage? It is my belief that the outcome of the election will not provide a sustained rally or downturn for let’s say the stock Indices or gold. The country will face the same economic reality with whoever is elected. If we see the unemployment rate fall below 7.8 percent, I believe it increases the chance of President Obama taking office.
If Friday’s report disappoints, coupled with revisions of prior month’s releases that show increasing losses, it may be an advantage for Romney. I think Gold will still be an attractive play as we enter November.
FISCAL CLIFF
After the election, the focus will probably turn to the fiscal cliff and whether the extension of the Bush tax cuts will be extended. The FOMC meets one more time this year in early December and there are already whispers that the Fed could do away with Operation Twist while adding dollars to additional stimulus efforts.
GOLD TRADE
Therefore, I am proposing a position trade long Gold using options spreads on a bull call spread basis for a $500.00 risk. I am looking to buy the February Gold 1775 call and sell the 1800 call for 5 points, if we can get a dip in futures prices between 1700 to 1705. The risk on the trade is $500.00 plus commissions and fees, with max profit at $2,500.00.
Bottom line, I believe investors should have some limited exposure to the long side of the market given the uncertainties investors will face for the remainder of 2012. Please contact me for other conservative strategies or to receive my free precious metals report delivered to you on a daily and weekly basis via email.
RISK DISCLAIMER: There is a significant risk of loss in trading commodities. Past performance is not necessarily indicative of future results. Only risk capital should be used. Losses from commodity investments may be greater than the initial investment(s). Commodity trading is not appropriate for all investors, and a commodity investment must be evaluated in light of the potential for risk of loss as well as the possibility of profit. Please contact your account representative for more information on these risks.
