Gold is maintaining a consolidative tone at the low of the recent range, weighed by a firmer dollar and the risk-on mindset that continues to drive stocks higher. Look for price action to be limited ahead of tomorrow’s important release of September jobs data.
The dollar index has eked out a new 7-week high at 93.96, but the August highs at 94.15 remains intact at this point. Dollar strength is being driven primarily by weakness in the euro, amid uncertainty as to the broader implications for Europe if Catalonia declares its independence from Spain on Monday.
Interest rate differentials continue to favor the dollar as well. While Janet Yellen laid out a number of concerns in a speech last week that could warrant easier monetary policy, the market now sees an 81% probability of a rate hike in December.
There does seem to be some optimism about growth, but inflation remains persistently weak. Those rate hike expectations may be tempered somewhat if the jobs report is weaker than expected. At this point, median expectations are looking for 87k new payrolls added in September and the jobless rate to hold steady at 4.4%.
If the real underlying purpose of tighter policy is to let some of the air out of asset bubbles, clearly the Fed is going to have to get more aggressive. At this point, good news is good news and bad news is good news for stocks. That however can not go on forever and gold is displaying good resilience in the face of this solid risk appetite.