Gold is up, trading at new 3½-month highs, having negated Tuesday’s high at 1321.47. The yellow metal is being buoyed by ongoing geopolitical tensions and renewed weakness in the dollar.
In what is perhaps a testament to gold’s growing favor as a portfolio hedge, the yellow metal is rising in the face of new record highs in stocks. Savvy investors realize that shares are now really overextended and are taking some profits and rotating the gains into gold.
Traders seem optimistic that tomorrow’s December jobs report will be a good one on the heels of today’s better than expected ADP employment survey. Median expectations for nonfarm payrolls is +190k, but the whisper is that we’ll see a print closer to +220k.
A significant payrolls beat would stoke confidence in Fed guidance that calls for three rate hikes in 2018, particularly if we see hotter than expected wage growth as well. That should keep bonds under pressure. Gold on the other hand seems to be shrugging it all off.
Rising U.S. yields should be supporting the dollar, but that doesn’t seem to be the case. In fact, the greenback appears poised to set 3-year lows against the euro. Something else seems to be afoot here, beyond geopolitical tensions and the weakness in the dollar.
Mounting concerns about over-inflated asset prices are surely part of the answer. There seems to be heightened talk about more general inflation as well, with commodity prices reaching levels not seen since 2014, when the oil market fell out of bed. Today, we saw palladium set a new all time high above $1100.
I read a great Grant William’s piece yesterday, that pretty clearly shows that the inflation the Fed has been trying to stoke for the last decade has been hiding in plain sight. If that inflation ultimately makes its way into broader prices, gold is likely to really shine as it is the classic hedge against inflation.