Gold continues to be strongly driven by speculation as to if and when the U.S. Fed will decide to increase interest rates. But this mood is very much data driven. Some positive figures last week, coupled with what were taken as some potentially hawkish statements by the Fed Chair and Vice Chair, had led to some sharpish falls in the gold price on the expectation that this had put the possibility of an interest rate increase announcement following the FOMC meeting to be held on September 20th and 21st back on the cards.
But data this week in the form of a poor ISM manufacturing figure, and now a considered-weak nonfarm payrolls increase, have reversed the gold price movement as now a September rate hike announcement is seen as unlikely again.
The latest employment figure suggesting the U.S. had added 151,000 jobs during August, as against expectations of 175,000 to 185,000, with a jobless rate of 4.8% saw gold spike by nearly $20 at one time to above $1330, on the publication of the announcement, before starting to slip back a little again. Traders and analysts now appear to see no Fed rate increase announcement until the December FOMC meeting - to be held on the 13th and 14th of that month - if then.
That will be yet another blow to the Fed's economic forecasting credibility given that it has consistently over-estimated U.S. growth and had suggested at the end of last year there would be three or four rate increases this as it moved to 'normalize' rates, while so far there have been none.
It is actually a moot point as to whether the U.S. economy is actually in recession or not. The stock market certainly suggests otherwise but this is buoyed up by low interest rates and Fed monetary policy, whereas some other key indicators make more negative reading.
Apart from the slower than anticipated job growth and the Chicago PMI downturn to below 50, it is apparent that the stronger dollar is impacting manufacturers who export adversely, while the latest domestic news from the auto industry in that sales turned down 4.2% in August. Reuters reports that some carmakers say the industry has peaked and that a long-expected decline due to softer consumer demand had begun. All is not well in the world's largest economy!