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Gold futures traded to $1797.60 and then closed lower on the day

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Gold futures basis most active December 2021 Comex contract opened at $1789.10 and then traded within $2.90 of $1800, before closing lower on the day compared to both its opening price and yesterday’s close. As of 4:32 PM EST December, futures are currently trading off by $2.90 and fixed at $1786.90, a net decline of 0.16%.

Dollar strength was the largest contributing factor to today’s decline in gold prices. The dollar gained 0.526 points, or 0.57%, and is currently fixed at 93.145. Dollar strength negated any potential gains realized from buyers bidding the precious yellow metal higher. So the question becomes what underlying forces drove the dollar substantially higher today.

Dollar strength is still reacting to an exceedingly strong U.S. jobs report. Many analysts have cited the Labor Department’s jobs report as a significant underlying force prompting investors to buy the U.S. dollar. On Friday, August 13, the Labor Department reported that nonfarm payrolls increased by 943,000 jobs in July. This robust number exceeded economists’ expectations polled by Dow Jones, who projected that July’s additional jobs would come in at approximately 845,000.

Many market participants have adjusted their market sentiment on the Federal Reserve’s monetary policy, believing that their current accommodative stance will diminish and become more hawkish. According to CNBC, “The Federal Reserve is expected to dial back monetary easing and slow its stimulus efforts as the economy recovers from the pandemic. The U.S. central bank has held rates near zero, but officials have signaled that hikes could happen soon, especially with inflation running hot.”

More and more Federal Reserve members are voicing that it is time for the Fed to begin to normalize the highly aggressive and accommodative monetary policy necessary to aid growth in the U.S. economy after the pandemic had virtually shut down the country for over a year.

In an interview with the Associated Press, Eric Rosengren, President of the Federal Reserve Bank of Boston, said that “The central bank should announce in September that it will begin reducing its $120 billion in purchases of Treasury and mortgage bonds fall.”

Recently the Washington Post reported that “The Fed’s ultraloose monetary policy could hurt both the economy and Biden’s agenda.” The Post’s article mimics the opinion of both Mohamed A. El-Erian is president of Queens College at Cambridge University, a professor at the University of Pennsylvania’s Wharton School, and an adviser to Allianz and Gramercy.

In the Washington Post article, El-Erian said, “It would be understandable and conventional to assume that the ultra-dovish monetary policy that the Federal Reserve continues to pursue a year and a half after the onset of the pandemic is contributing to a strong, sustainable and inclusive recovery. This may no longer be the case. Instead, it is increasingly putting at risk, not just the recovery but also President Biden’s transformational economic agenda.”

The actions by the Federal Reserve have doubled their balance sheet, now totaling $8 trillion. Add to that fiscal stimulus by the United States government has caused our national debt to rise tremendously. As of September 2020, the national debt had risen to $26.95 trillion. That number most certainly has increased substantially and now raises the question about raising our current debt ceiling. Janet Yellen the Secretary of the Treasury has urged Congress that without raising the debt ceiling it is likely that the United States for the first time in history would be unable to service its debts.

Chairman Jerome Powell has acknowledged that the current path of expenditures is unsustainable. Given those facts, it will no longer be easy to kick the can down the road in regards to letting our national debt continue to grow without there being severe repercussions further down the road.

Wishing you, as always, good trading,

Gary S. Wagner - Executive Producer