This past week the gold market saw another relatively tight trading range. The market is seemingly being held hostage right now by changing interest rate expectations. Friday’s non-farm payrolls data is likely to shift rate expectations even further, and speculation on the Fed’s next move-or lack of-will almost certainly remain the center of focus for investors.
The Fed symposium from Jackson Hole, Wyoming last week brought with it some hawkish rhetoric from some Fed officials. Fed Chairwoman Janet Yellen discussed her views, and voiced her opinion that the the case for another rate hike has strengthened. Ms. Yellen did not provide a timetable for such a move, however, and almost certainly wants to keep the central bank’s options open.
Fed Vice-Chairman Stanley Fischer even went so far as to allude to the possibility of two rate hikes this year.
Overall, markets did not display much of a reaction one way or the other. While the commentary was certainly more hawkish sounding, perhaps investors need a little more convincing.
Friday’s Employment Situation report will likely not help the policy hawks. According to the U.S. Department of Labor, the country added 151,000 jobs in August. This reading was well below consensus estimates of 175,000 jobs added and could potentially take a September rate hike off the table.
Both gold and silver saw a nice bounce following the jobs data today as some short covering likely took place and bargain hunters stepped in.
The question now becomes whether any follow-through upside will be seen in gold and silver.
The coming week will be a short week due to the Labor Day Holiday and trading volumes may be light the rest of the week. It will also be very light in terms of data. Markets will get the latest readings on MBA Mortgage Applications, Weekly Jobless Claims, ISM Non-Manufacturing, the Fed Beige Book and more.
Following the August jobs data, investors as well as the Fed may pay very close attention to the data stream. The central bank even want to see a rebound in the September jobs data before taking any action.
Any significant weakness seen in key data points could potentially take a rate hike off the table for September or possibly even December. For right now, however, the Fed seems fairly intent on hiking at least once this year. Some might argue that such a move is still premature and that the central bank may just want to preserve its credibility.
Gold and silver may be quite vulnerable to key data releases over the coming weeks, with strong data weighing on the metals and any weakness potentially fueling further buying.
The interest rate debate is set to continue for the time being, and this debate could go on until year’s end. In the meantime, gold and precious metals will be driven by rate expectations and overall risk appetite. As heavier trading volumes return to the market next week and the week after, stocks could also see more action. Equities have lingered not far from recent all-time highs, and could be getting a little frothy. Any significant selling in stocks could also be supportive for gold and precious metals, as a large increase in risk aversion could spur heavy buying in perceived safe havens such as gold, silver and treasuries.