The Daily Market Report: Gold Slips Within Range After Jobs Data Prove Inconclusive

04-Sep (USAGOLD) — Gold initially firmed in reaction to this morning’s U.S. jobs data miss, but intraday gains could not be sustained amid ongoing concerns that the Fed will still hike rates later this month. The yellow metal slipped back to set new lows for the day, remaining well within the confines of the recent range.

U.S. nonfarm payrolls for August came in at a soft +173k, well below expectations of +214k. However, the unemployment rate dipped to 5.1%; its lowest level since 2008. The market just doesn’t seem sure if today’s data is supportive to a rate hike or not.

Stocks certainly don’t like it, with the DJIA down about 300 points. This may not really be the result of heightened rate hike expectations, but rather ongoing concerns about China. Chinese markets will reopen on Monday after a two-day celebration commemorating the end of WWII. Meanwhile, U.S. markets will be closed in observance of Labor Day. Investors may be disinclined to hold exposure to shares over the long holiday weekend in light of the recent extreme volatility.

Policy hawks will hitch their wagon to the lower jobless rate and the modestly better than expected uptick in average hourly earnings. The doves continue to note lackluster growth, the complete absence of inflation, and the aforementioned extreme global market volatility.

Given that the ECB just went more dovish yesterday, pushing the dollar index back toward its 12½-year highs, it seems the Fed would be loathe to confirm policy divergence at this juncture. Such a move would be the first in nearly a decade, but it risks precipitating the next recession that that Fed is so desperately hoping the avoid.

Ah, the hubris of believing the natural business cycle can be circumvented. That next recession is coming, regardless of what the Fed does next.

Since the Great Depression, the U.S. has suffered thirteen recessions. The periods of economic growth between recessions have been as long as 120-months, and as short as 12-months. The average is just over 59-months.

The time elapsed since the Great Recession “officially” ended in June 2009 presently stands at 74-months. We are due and the Fed probably is worried that it doesn’t have the rate cut tool at its disposal this time around. It could conceivably hike rates 25 bps simply to provide some clearance above the zero-bound, so it can cut rates if the economy weakens.

Silly? Perhaps, but unquestionably that discussion has occurred.

Of course they could always return to QE, but it is becoming increasingly obvious that QE doesn’t work. The Japanese have gone absolutely hog-wild with QE recently and their economy actually shrunk 1.6% in Q2. Annualized GDP remains below 1%.

Arguably putting more liquidity in the hands of the banks and making credit incredibly easy has greatly enriched the banks and the wealthy. Central bank largess has not filtered down to the average American, Japanese or European. Consequently there is heightened talk — particularly in the UK — of public quantitative easing (PQE).

PQE would allow the government to instruct the central bank to print money in order to directly finance government programs. If that’s not a slippery slope, I don’t know what is!

If a central bank wants inflation — and they all most-certainly do — give the government access to unlimited money. What could possibly go wrong?