Gold slipped to a new 10-week low in early New York trading. Today’s batch of U.S. economic data was mixed, but with perhaps a modest positive bias, which buoyed rate hike expectations and the dollar.
The ADP employment survey for August came in slightly better than expected, fostering optimism that Friday’s nonfarm payrolls report will be a good one. Median expectations are running just below 190k, with a downtick in the jobless rate to 4.8% anticipated. Hourly earnings are expected to edge higher by 0.2%.
A better than expected NFP report would likely excite the hawks and start the table banging for a September rate hike. Fed funds futures put the odds of such a move at 27%. However, at that point it will be just over 2-weeks until the September FOMC meeting; even bettering of the odds to a 50-50 proposition may still be a stretch.
I also think there is some trepidation about tightening less than 7-weeks before the presidential election. In the weeks following the December 2015 rate hike, the DJIA fell nearly 12%. Arguably stocks are overextended, and perhaps vulnerable once again.
We may see the odds of December hike heighten, but as Yellen, Fischer et al have made quite clear, there will have to be confirmation in the subsequent data. Who knows what the data might hold going into year-end, not to mention that election in November… Certainly the Fed has proven time and time again that they do not have a crystal ball. In fact, their forecasts have tended to overly optimistic.
The latest pullback in the gold price may be a great opportunity to lay in a hedge against that uncertainty. As our own Michael Kosares points out in his latest post, the September to February period tends to be a seasonally strong one for gold.