Today we want to discuss the important news topic of the Non-Farm Payroll (NFP) and Unemployment Rate and how it relates to ETF Traders. These are governmental reports released by the Bureau of Labor Statistics (BLS). These reports are issued on the first Friday of the month and ones that can cause some strong movements in the volatility. These reports can effect stocks, option, futures, currencies and metals.
The NFP looks at the change in the number of people where were employed for the last month. It excludes those that were employed in the industry of farming. One of the reasons this is looked as an important announcement is that it is a leading indicator for looking at consumer spending. The more people employed the more they will spend. For the month of November, the NFP was reported to have increased by 146,000 which was higher than the forecast of 89,000.
The Unemployment Rate looks at the total work force that is actively looking for employment but currently unemployed for the past month. Unlike the NFP, the Unemployment Rate is considered a lagging number but important in understanding the overall health of the economy. This report was also better than the forecast which was at 7.9% and came in at 7.7%.
Because the reports came out showing that employment rose by 146,000 in November, and the rate for unemployment dropped down to 7.7 percent these numbers beat both the estimates and caused the metals market to show some extreme volatility, at least temporarily.
In the charts below you can see both gold and silver and how the price moved at the time of this report. You should also see the importance of being aware of when a major economic report is being released. By know this you can take steps that will help both protect your positions and that will keep you away from trades that may be hurt by this volatility.
This is the 5 min chart for gold. Notice what happened as the news was released.
You can see that as the news was released the market gaped down. Notice what happened before and after the release. This type of volatility can make it very difficult to trade consistently in the market. The simple way to trade this is just to avoid the initial announcement of the data and wait for the market to become deliberate again.
Here is the 5 min. of chart of silver.
This chart also illustrates the importance of having a plan to trade during news. Good money management and following your rules is critical to your overall success. Take the time to review when major news is coming out so you can be prepared for what may or may not happen.