Commentary for Friday, August 7th, 2015 (www.golddealer.com)
By Ken Edwards and Richard Schwary of California Numismatic Investments Inc….
Gold closed up $4.00 today on the Comex at $1094.10, in choppy trading which surprised everyone.
The July jobs data came in as expected with 215,000 new jobs, another decent showing but not stellar and if you consider how many people are actually making more money (virtually zero) you can see why some are divided on this rate hike.
Still the accepted wisdom is that a hike will happen in September. I fall into the group that expects the rate hike to be very small – perhaps in the 0.12% to 0.25% range, so enough to show the Federal Reserve has increasing confidence that their zero interest rate policy has worked to jump-start the economy but not enough to upset the apple-cart.
Anything larger than this would upset our European friends and the IMF would not be happy. Still our government believes the economy can stand a small increase in rates and it will put them in a better position to lower rates if anything goes wrong with the late stages of this recovery.
The reaction to the price of gold after the July jobs report was released indicates just how divided traders remain as to what the Federal Reserve has in mind regarding interest rates. The jobs information was just slightly less than expected but the economy still created well over 200,000 jobs – so let’s call this in line with expectations. The price of gold immediately sold off in early New York domestic trading, dipped to below $1085.00 and then just as quickly turned around and headed higher and almost reaching the $1100.00 level.
Why? This looks like a short-covering rally in a generally bearish market in which the short players have run out of cards. In other words they have hammered away at a trading range between say $1040.00 and $1080.00 looking for that key price break-down which would support the common idea that an interest rate hike will happen in September.
If you look at the Dollar Index in early morning trading this trading inflection can clearly be seen – the index moved from relatively flat to higher by more than half a point and then, just as quickly moved back to unchanged and lower. We closed yesterday at 97.79, saw a trading range today of 97.51 through 98.33 and are now moving lower at 97.58. This would suggest that traders changed their minds in mid-stream figuring early on that the jobs information would be better than expected and assure a Federal Reserve rate increase in September.
My point is not to second guess traders or the Federal Reserve but show that this rate increase is not as simple a metric as everyone assumes. Sure the Federal Reserve will raise rates but when and how remains uncertain and that is why the price of gold and the dollar remain erratic.
Silver closed up $0.14 at $14.81 in quiet trading.
Platinum closed up $6.00 at $961.00 and palladium was off $2.00 at $597.00. Rhodium closed up $20.00 at $850.00. Physical rhodium action has been subdued but lately seems to be picking up with investors.
This from Joseph Adinolfi (MarketWatch) – Dollar rises to 2-month high vs. yen after July jobs report – The dollar rose to a two-month high against the Japanese yen Friday after the Labor Department said the U.S. economy created 215,000 jobs in July, a reading that was roughly in line with the market’s expectations.
Readings on jobs growth for June and May were raised slightly. Economists polled by MarketWatch were expecting 220,000 new jobs.
Conflicting statements from members of the Fed’s rate-setting committee earlier in the week, plus a lower than expected reading on manufacturing-sector activity from the Institute for Supply Management, confounded investors’ expectations for the timing of what would be the first increase to the Fed-funds rate, the Fed’s benchmark interest rate, since 2006.
As a result, the dollar traded in a narrow range for most of the week, as currency traders opted to wait for Friday’s number before adjusting their positions.
But while the dollar’s reaction to the data suggested the market is pricing in a September hike, strategists were divided as to whether the jobs number was in fact a clear indicator.
Marc Chandler, global head of currency strategy at Brown Brothers Harriman, said the number increased the likelihood of a rate hike in September.
“On balance, we suspect that the jobs data meets the Fed’s criteria of more improvement before raising rates. Ideally, this will be confirmed in the Labor Market Conditions Index and the JOLTS report out next week,” Chandler said in his note.
One slight blemish was the July reading on average hourly earnings. While the monthly increase of 0.2% was in line with investors’ expectations, the year-over-year number didn’t rise as much as expected. The yearly wage growth now stands at 2.1%, up from 2% in June.
Steven Barrow, head of G-10 strategy at Standard Bank, said the number was “pretty inconclusive,” and that he continues to expect the Fed to hike in December.
Barrow said the U.S. economy must still contend with the effects of a strong dollar and weak crude-oil prices, both of which are strong impediments to growth.
“If September is realistically the first opportunity the Fed has to raise rates—I’m just not sure they’ll go with the first opportunity,” Barrow said. “I don’t think that’s the message they want to send as to what it implies for policy going forward.”
Our Patented Employee Survey– Gold’s Direction Next Week?
Of course it’s not really patented but we do have some fun along the way. This is what the GoldDealer.com employees think – 7 believe gold will be higher next week – 3 think gold will be lower and 1 thinks it will be unchanged.
Our Patented Customer Survey– Gold’s Direction Next Week?
Like the employees our customers were given three choices – up – down – unchanged. We limited the survey to a random sampling of 100 transactions – unscientific but worth considering because these people took action: 35 people thought the price of gold would increase next week – 50 believe the price of gold will decrease next week and 15 think prices will remain the same.
Precious Metal Closes & Dollar Strength – Aug. 3 – Aug. 7
The walk in cash trade has settled down and the phones were also less busy. We had some problems with our toll free lines (1-800-225-7531) this morning but the telephone company seems to have worked all this out – sorry for the inconvenience but talking with the phone company can be sort of like talking with the government.
The GoldDealer.com Unscientific Activity Scale is a “4” for Friday. The CNI Activity Scale takes into consideration volume and the hedge book: (Monday – 5) (Tuesday – 6) (Wednesday – 8) (Thursday – 6). The scale (1 through 10) is a reliable way to understand our volume numbers. The Activity Scale is weighted and is not necessarily real time – meaning we could be busy and see a low number – or be slow and see a high number. This is true because of the way our computer runs what we call the “book”. Our “activity” is better understood from a wider point of view. If the numbers are generally increasing – it would indicate things are busier – decreasing numbers over a longer period would indicate volume is moving lower.
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