The week ahead for gold carries a heavy burden for the precious metal. Last week's monthly employment data provided confirmation of my forecast for a pickup in second half economic activity. Economic growth serves U.S. dollar strength and monetary tightening. Monetary tightening serves U.S. dollar strength. U.S. dollar strength, economic growth and reinvigorated interest in risky assets should see alternatives, like in gold and silver, lose capital support. At the same time, we continue to monitor inflation for its coming presence in the discussion. Still, I reiterate with greater confidence my prior outlined short-term bearishness for precious metals on economic strengthening. I also reiterate my view that precious metals remain appropriate holdings for long-term investors seeking wealth preservation and more complete risk diversification.
|Precious Metals Security||08-04-17|
|SPDR Gold Trust ETF (NYSE: GLD)||-0.8%|
|iShares Gold Trust ETF (NYSE: IAU)||-0.7%|
|iShares Silver Trust ETF (NYSE: SLV)||-2.2%|
|VanEck Vectors Gold Miners ETF (NYSE: GDX)||-1.7%|
|VanEck Vectors Junior Gold Miners ETF (NYSE: GDXJ)||-2.1%|
|Direxion Daily Gold Miners Bull 3X Shares ETF (NYSE: NUGT)||-5.8%|
|Direxion Daily Gold Miners Bear 3X Shares ETF (NYSE: DUST)||+5.3%|
|Goldcorp (NYSE: GG)||-2.0%|
|Newmont Mining (NYSE: NEM)||-1.2%|
|Barrick Gold (NYSE: ABX)||-2.6%|
|Randgold Resources (NASDAQ: GOLD)||-1.0%|
|Wheaton Precious Metals (NYSE: WPM)||-1.8%|
|Coeur Mining (NYSE: CDE)||-1.6%|
Losses in the precious metals complex were broad and common on Friday's strong economic indication and dollar strength.
The week ahead bears the burden of the week just passed. U.S. nonfarm payroll increase of 209K exceeded expectations, and the three-month average increase of 195K jobs reassures us of that strength in the labor market. Unemployment decreased to 4.3%, from 4.4%, and the employment participation rate improved where demographics demand it deteriorate.
The situation implies a pickup in consumer spending is coming, and with it higher rates of GDP growth than the 2.6% rate seen in Q2. As inflation is still short of the 2.0% the Fed sees as optimal, and not approaching it at a more threatening pace, then precious metals should not see much benefit.
Only if tightening labor brings rise to surprisingly strong inflation should gold and silver prices benefit. I believe this will eventually happen, supported also by a possible shock to the U.S. dollar, but it does not appear to be in the cards today.
Today, investors are weighing the changing perspective for the U.S. and global economies, though readers of this column should have been expecting it. That change serves risky assets and is a draw of capital from perceived safe havens like gold and silver.
Entering this week, gold has hardly noted North Korea in the news. United Nations sanctions, the engagement of China, strong words and rhetoric from the U.S. and allies, and also from North Korea, is all lost in the wind after years of never resulting in anything substantive. Markets seem sure to focus on the economy, given the importance of Friday's data.
The same goes for Oval Office chaos, while the president is on his non-vacation vacation in New Jersey. In this high-point for congressional and government vacationing, look for less on the wire around the Russian election meddling etc.
This week's data provides an opportunity for more evidence of the same good economic news. Several labor market measures, including the Labor Market Conditions Index the Job Openings and Labor Turnover Survey should convey the same strong message about the economy as Friday's data. However, there's a likelihood of intensifying attention to rising labor costs (inflation). That could be supported also by this week's price data in the Consumer Price Index due Friday.
Economists expect the Consumer Price Index (CPI) increased by 0.2% in July. More importantly, excluding the volatile changes of food and energy prices, the Core CPI is expected to increase 0.2%. The year-to-year price change for July is seen at 1.8%, a step up from 1.7% in June. The step up matters, and it will increase the attention of the media to the issue. If prices are shown to be increasing faster than that, inflation may make a mark on the radar for gold.
Also, several Fed speakers are due to address audiences this week, including James Bullard and Neel Kashkari on Monday, Charles Evans on Wednesday, William Dudley on Thursday and Robert Kaplan and Kashkari on Friday. If there is a change in tone toward more hawkish monetary policy, look for the dollar to rebound even faster (as I expect) and for precious metals to soften. For more of my work on precious metals, readers are welcome to follow the column here at Seeking Alpha.
Disclosure: I/we 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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.