The gold market’s worried about inflation, but there are few signs of it in the official numbers. Nor is there likely to be much pricing pressure anytime soon if we consider the latest estimates from ADP.
Nonfarm payrolls for November are expected to be lighter by 169,000 over the previous month, according to the ADP National Employment Report, which attempts to provide an advance estimate of the official data from the government, which will be released on Friday. If we take the ADP report at face value, the labor market is still bleeding jobs, albeit at a lower level than October’s 190,000 loss. But no one should mistake a 169,000 reversal as good news at this late date in the economic cycle.

The danger here is that the labor market continues to contract at a brisk pace. The fact that jobs are evaporating at well below the rate from earlier in the year is cold comfort at this point—two years after the recession began and more than 7 million jobs down the rat hole. At some point job growth will return, but it’s unclear if that glorious day is anywhere near.
As for inflation, the ongoing weakness in the labor market sends a rather large clue that inflationary pressures will stay muted, at least as officially calculated. That hasn’t stopped the gold market from rising above the $1,200 market today for the first time in history. Anxiety over rising debt and a weaker dollar are the immediate concerns driving the metal higher. Eventually that will bring higher inflation, argue the goldbugs.
In the meantime, the Treasury market’s inflation outlook remains marginally higher relative to the depressed levels from earlier this year, as our chart below shows. But the market’s inflation forecast of a bit over 2% for the next decade is well short of a future of bubbling prices envisioned by the gold market.

One of these markets is wrong. Or perhaps inflation will run at a rate that’s midway between the two extremes anticipated. Nonetheless, it’s hard to ignore the fact that there’s a fair amount of conflicting signals about 2010 and beyond. Inflation is just the tip of the iceberg.
With all the major asset classes rallying sharply this year, as we noted yesterday, the possibility for disappointment is alive and kicking. The fact that the crowd thinks otherwise only strengthens the case for thinking that a fresh round of volatility may be coming.