Gold extended to new 9-month highs in early New York trade, following disappointing jobs data this morning. However, follow-through gains were limited ahead of the long Labor Day weekend.
Nonetheless, the yellow metal remains generally well bid with favorable fundamental and technical backdrops. Short-term setbacks will likely be viewed as buying opportunities.
The weaker than expected rise in nonfarm payrolls in August, along with negative revisions to previous months and continued softness in hourly earnings raises additional doubts about another rate hike this year. Fed funds futures indicate there is only a 1.4% chance of a September rate hike, while the potential for a December hike is steady around 38.2%.
I’ve also sensing a little more skepticism about the timing of the initial move on balance sheet normalization. The Fed had indicated that reduction of the massive $4.5 trillion balance sheet would likely begin in September. Today’s jobs data, along with rising concerns about a U.S. default and government shut down may give the Fed pause, even given how minimal those initial sales are expected to be. It’s just another level of uncertainty in an already very uncertain environment.
The rest of the data out today were mixed: University of Michigan consumer sentiment was revised lower to 96.8 in August, from the 97.6 preliminary read. but was still higher than the 93.4 final print in July. Markit’s manufacturing PMI fell in August, while U.S. manufacturing ISM rose. Construction spending was down 0.6%, where a 0.6% rise was anticipated.
Congress returns to work next week and they’ll have their work cut out for them to come to terms on a budget and avert a breach of the debt ceiling. It seems rather likely that those processes will be contentious.
Reuters reported today that the looming debt ceiling debate is pushing some fund managers out of stocks and into cash. However, given the current trajectory of the dollar, they might actually be better served going into gold. Sometimes that ends up being the second step in the reallocation process.