Gold Firm As Busy Week Commences

Includes: GLD
by: Peter Grant

Gold heads into the end of July on fairly firm footing, with the yellow metal up about $100 (7.7%) on the month at this point. It's a busy week and any of the biggies on the agenda could set the near-term tone for gold.

The Fed begins a two-day FOMC meeting on Tuesday, with the policy announcement coming on Wednesday at 14:00ET. Policy is likely to be left unchanged at this point, but Wall Street Journal Fedwatcher Jon Hilsenrath thinks the Fed may seek to sharpen its easy-money message in the wake of recent market volatility.

There will be no press conference this month, which is where Bernanke got in trouble in June, when he suggested that if the economy improves per Fed expectations, the central bank could begin removing accommodations later in the year and end the QE program by mid-2014.

The market paid no attention to the qualifiers initially; all it heard was QE would end in mid-2014. The chairman has recently been seeking to clarify that the "ifs" are big and important. The FOMC will have a chance to do that again on Wednesday.

Also on Wednesday will be the Q2 Advance GDP report for the U.S., calculated with a new methodology that adds in "intangibles." According to a weekend FT article:

U.S. economic history will be rewritten this week, as the most far-reaching methodological changes in years will add the equivalent of a country the size of Belgium to output in the world's largest economy.

The ZeroHedge blog was a little more biting:

Don't like how high debt-to-GDP figures are? Revise 'em. Unhappy at the post-'recovery' growth rates? Revise 'em. Disappointed at the pace of economic improvement in the last decade or two compared to the rest of the world? Revise 'em.

Nonetheless, expectations are pretty grim. While the median is around +1.0%, many economists have recently revised their Q2 forecasts to below 1%. Morgan Stanley is one of the lower estimates at just +0.3%. Evidence of continued growth risks in the wake of the negative revision to 1.8% in Q1 could finally put the taper talk to rest.

The ECB announces policy on Thursday. It is also widely expected to hold steady, but the surprise shift to forward guidance in July was pretty clearly indicative of an easing bias. "Governing Council expects the key ECB interest rates to remain at present or lower levels for an extended period of time," said Mario Draghi in his opening statement at the July policy announcement.

On Friday, July employment data comes out. Median expectations are +183k nonfarm payrolls and a downtick in the jobless rate to 7.5%. That would be a drop from the 195k jobs created in June, although everyone will be paying attention to full-time jobs versus part-time jobs.

Last month, while +195k was broadly seen as a good number, jobs gains were largely in the part-time category. Full-time jobs actually fell by 240k. Fed chairman Bernanke made note of this recently when he said, "the unemployment rate probably understates the weakness in the labor market."

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.