Gold futures sell off strongly as the metal attempts to hold onto $1700

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Gold futures basis the most active August contract has sold off sharply in trading today. As of 4:11 PM EST gold is trading $33.90 lower on the day, and fixed at $1700.10. This after trading to an intra-day low today of $1690.30. Today’s decline is currently just shy of a 2% drawdown.

Today’s sharp decline is definitely a byproduct of an extremely strong U.S. equities market, and the release of this week’s ADP jobs report that came in well under expectations. Today ADP (Automatic Data Processing Inc.) reported that 2.76 million jobs in the private sector were lost in May. Economists had forecast this number to be approximately 8.66 million. Both the actual results and estimates were well below April’s loss which amounted to the private sector giving up a little over 9.5 million jobs.

Ahu Yildirmaz, the cohead of ADP research Institute said, “While the labor market is still reeling from the effects of the pandemic, job loss likely peaked in April, as many states have begun a phased reopening of businesses.” According to a report in MarketWatch, many economists believe that the rehiring of individuals has begun as states reopen and the numbers are substantial.

Ian Shepherdson, chief economist at Pantheon Macroeconomics said, “This suggests that the re-hiring of people in states beginning to reopen was very substantial, even though reported job postings on Indeed fell further between the two surveys. Presumably, most people were simply rehired by email, text or phone call. It is possible that ADP’s numbers are unrepresentative for May, or that the model is unreliable given the step-shift in the state of the labor market, but the safest approach probably is to assume that Friday’s official payroll numbers will be much less bad than the current consensus, -8,000K. And June payrolls likely will increase substantially,”

The better than expected ADP report moved U.S. equities sharply higher, with the Dow Jones industrial average gaining 2.05%, or a total of 527.24 points, taking that index to 26,269.89 points. This week’s rally in U.S. equities indicates that traders and market participants are favoring equities or the risk on asset class in favor of the safe haven asset class as they believe that the worst of the global pandemic could be behind us.

It is my belief that this newfound bullish demeanor for U.S. equities is not accounting for the trillions of dollars that have been allocated and spent as aid packages by the government and the trillions of dollars that have been added to our monetary supply by the Federal Reserve. While the great news that fewer and fewer cases of the Covid 19 virus are being reported daily, the economic damage afflicted by this pandemic will at some point need to be accounted for, and more importantly paid back.

Wishing you as always good trading and good health,

Gary S. Wagner - Executive Producer