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22,000 Dow, Jobs Report, and Gold

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The most recent rally in gold has paused as traders pull profits and seem reluctant to initiate large stakes ahead of tomorrow’s jobs report. As of 4 o’clock EDT, gold futures are trading off by about $3.60, currently fixed at $1271.50. At the same time, spot gold is trading fractionally higher, trading up approximately $2.30 at $1268.50. Today’s lower close in gold futures is the second occurrence of lower pricing this week.

It is important to look at a fresh dichotomy between gold futures pricing between contract months. Recently we have seen an inversion between the most current contract month and the outer contract months. Today, for example, August futures are trading at $1274.30, while October futures are trading at $1271.20.

A 22,000 Dow

While there are multiple factors currently influencing gold pricing, the risk-on environment which has been so prevalent in U.S. equities continues to attract the majority of investors’ funds. A recent lull in tensions in geopolitical hotspots such as North Korea and Venezuela has moved investor’s focus back to U.S. equities.

The Jobs Report

Tomorrow’s jobs report is being viewed with additional attention. While it is always a major focus of market participants and analysts, tomorrow’s report is more critical than usual, according to Bloomberg News.

“Even though the Federal Reserve is poised to start shrinking its $4.5 trillion balance sheet, the outlook for continued rate increases is very much in doubt following the recent slowdown in inflation. That makes the monthly jobs report on Friday even more important than usual as investors and analysts try to figure out whether the central bank will continue to take its cues from labor market strength rather than inflation weakness as it charts a course for monetary policy.”

In the article penned by Tim Duy in today’s Bloomberg Views, he states that there are three main things policymakers will be looking for in tomorrow’s report. They are jobs, unemployment, and wages. The author speculates that if employment reports play out according to current consensus expectations, the Fed will stick to its plans.

“In that case, then the market odds of a December rate hike of 32 percent are on the low side. To be sure, we have four months of data until the Fed needs to make a decision about that meeting, but any labor market data that looks likely to maintain downward pressure on the unemployment rate will be on net hawkish even if inflation remains weak.”

While the actual number of tomorrow’s jobs report are unknown, what is highly probable is increased volatility and the potential once again for a knee-jerk reaction as market participants and analysts digest the information and project how this information will affect the current thinking of the Federal Reserve.

Gary S. Wagner - Executive Producer