The Daily Market Report: Gold Gains After ECI Miss Undermines September Rate Hike Expectations

31-Jul (USAGOLD) — Gold began the U.S. session somewhat defensive within the broad range that has dominated for the last two-weeks. However, the yellow metal rebounded sharply intraday after much weaker than expected employment cost data undermined the prospects for a September rate hike.

ECI rose a scant 0.16% in Q2, well below expectations of +0.6%. That’s the weakest quarterly rise in salary and wages on record. The annualized ECI rate slowed to +2.0% y/y, versus +2.6% in Q1.

Weakness in wages has been a persistent concern at the Fed and likely will figure into their decision whether to hike rates or not this year. At the press conference following the June FOMC meeting, Chair Yellen said, “There have been some tentative signs that wage growth is picking up. We’ve seen an increase in the growth rate of the (ECI).”

I don’t imagine she’d say anything like that today. In fact, today’s drop in yields and the dollar are reflective of diminished expectations that lift-off will occur in September. I remain skeptical that it will happen this year at all.

Gold was buoyed by the drop in the dollar, regaining the $1100 level intraday before gains moderated when Chicago PMI beat expectations. Then University of Michigan consumer sentiment was revised lower. As I suggested earlier in the week, given the unevenness of the “recovery,” the September FOMC meeting is going to be an interesting one.

A rate hike before year-end is anything but a sure-thing. As that become more apparent, unwinding of long dollar positions could accelerate. That’s going to put upward pressure on gold and put the squeeze on the shorts in the paper market.

Société Generale’s Albert Edwards warns that we’re hurtling toward an “even bigger version” of the 2007-2008 global financial crisis. He expects central banks to spool-up the printing presses yet again. “QE will be stepped up to such a pace that you will hear the roar of the printing presses from Mars,” said Edwards.

Gold is a “must-have” safe-haven investment according to Edwards. The time to get you safe-haven, your insurance, is before everyone else realizes they need it too. When it’s undervalued. Like gold is now.