Gold - The Big Bang

It began on Thursday, August 5, the day following the release of ADP’s private-sector jobs report. This was the first day when gold traded on an intraday basis below its 100-day moving average, which is currently fixed at $1803. On Wednesday, August 4, gold futures traded to an intraday high of $1836.10 before settling, in essence, unchanged near the lows of the day.

The immediate uptick in prices was a knee-jerk reaction to the ADP jobs report, which came in exceedingly under forecasts by economists polled by Dow Jones. While it was anticipated that ADP’s report would indicate over an additional 600,000 were added in July.

 However, the actual numbers revealed that only 330,000 private-sector jobs were added. The highs achieved early in trading were certainly not sustainable and were a precursor to the carnage that would follow over the next few days.

The Big Bang, as gold prices plunged, began on Friday, August 6, the day the U.S. Labor Department released its nonfarm payrolls jobs report for July. Dow Jones polled economists resulting in a forecast that over 800,000 new jobs would be added to payrolls last month. The actual number came in well above estimates and over 900,000.

The net result for gold was that it opened at $1806 and closed substantially lower by the end of trading on Friday at $1763. But it was the activity that occurred overseas that took gold prices to a low not seen since the double bottom that occurred at the beginning and end of March 2021. On Monday in Australia and Hong Kong (Sunday in Hawaii and the mainland ), gold futures plummeted to an intraday low of $1677.20. However, just as the high that occurred on August 4 was unsustainable, so was the extreme low created on August 9. Gold recovered $68 from the lows and settled at $1725. Today’s trading activity was truly an inside trading day with gold prices basis the most active December 2021 futures contract gaining $3.30 (+0.19%) and fixed at $1729.80, a fractional gain at best. It also closed within $0.10 of its opening price which was $1729.70.

One takeaway from the recent deep price decline, according to Craig Erlam, senior market analyst at Oanda was that he believes that “Gold has stabilized after a turbulent start to the week.” But it was his comment about this recent decline limiting more downside once tapering begins saying that, “One thing that may limit downside is that a taper” of the Federal Reserve’s asset-purchase program “is so heavily priced in now, that we could see diminishing effects from the ongoing hawkish commentary from Fed figures.”

However you want to spin the recent dramatic price decline in gold, it is clear that this is the most important economic report that the Federal Reserve will have as a basis to discuss any changes in their monetary policy at the Jackson Hole economic symposium in Wyoming at the end of August. While one extremely strong jobs report might not be enough for the Federal Reserve to immediately begin to taper, strong jobs report in August could certainly seal the deal. We could have more concrete information about a timeline begin tapering at the end of August after the Jackson Hole economic symposium. At the same time, gold sold off so dramatically, it seems highly likely that any announcement of tapering is at least partially baked into current pricing if not completely factored into current pricing.

Wishing you, as always, good trading and good health,