05-Feb (USAGOLD) — Gold jumped to a new 14-week high of 1163.28 in the moments after today’s January jobs report, before retreating into the range. However, most of those intraday losses have already been retraced and the yellow metal is back positive on the day.
The headline payrolls number of +151k was a disappointment, coming in below expectations and well off the negative revised +262k figure from December. However, policy hawks were encouraged by another downtick in the jobless rate to an 8-year low of 4.9%, as well as the 0.5% rise in average hourly earnings.
That got some to thinking just maybe the Fed has room for another 25 bps rate hike after all. Others that had seen nice gains in their long gold and bond, and short dollar positions this week perhaps thought it prudent to book profits ahead of the weekend.
The yellow metal dipped to 1144.90 intraday, before mounting a comeback. Trading around 1157.00 presently, gold is up more than $40 (3.6%) on the week. If we get a close around these levels, that’s a pretty good week indeed!
Gold has benefited since the first of the year, in part from diminished expectations about follow-on rate hikes. The Fed raised rates off the zero-bound on December 16th with guidance suggesting there could be at least four additional 25 bps hikes in 2016. You might recall that many viewed this as a death knell for gold.
However, in the subsequent weeks, market expectations quickly eroded to maybe one additional hike in H2. Then some were talking about no more rate hike at all and now some believe the next move from the Fed will be a rate cut.
The bond market, meanwhile, sees no shades of grey in the data; it is shifting rapidly from pricing in one rate hike this year towards pricing in the possibility of the next move being a rate cut, all but ridiculing the Fed’s insistence that four rate hikes would come to pass in 2016. — Financial Times
When the Fed pulled the trigger back in December, raising rates for the first time in nearly a decade, Jim Rickards was quick to call it a “huge mistake” that “will be one of the great blunders in Fed history.” That sentiment has steadily gained traction — as a result of the weak economic (particularly manufacturing) data unveiled since the first of the year — and is now being echoed by the mainstream financial press.
December 16 2015 may go down as the date of one of the most monumental policy errors in history. — Financial Times
Wall Street Journal FedWatcher Jon Hilsenrath thinks today’s jobs data leaves the March decision in limbo. Rickards thinks there may be another rate hike still in the cards because the Fed is always the last to know that things in the real world aren’t as good as the central bank’s models suggest.
“Fed officials were expecting a slowdown. Payroll gains averaged 279,000 a month in the fourth quarter, too much for an economy that was barely growing,” said Hilsenrath. Barely growing? There you have it; further confirmation that the Fed tightened into economic weakness.
And not just weakness, but disinflationary pressures as well. Higher rates and expectations of higher rates tend to buoy the dollar, putting further weight on growth prospects and prices. In other words, classic central bank dogma suggests that is not the time to tighten policy. It may prove to be a mighty big blunder indeed.