Gold Gyrates But Maintains Appeal To Investors

It’s getting close to Fed O’clock.

The next Federal Open Market Committee meeting is still six business days away but the avalanche of data – especially the U.S. Department of Labor’s Employment report for February issued earlier today – will stoke the rate-hike debate and roil the markets till the minutes are released one week from Tuesday.

Here’s what the Labor Department report said in a nutshell.

Non-farm payrolls increased by 242,000 jobs last month and the unemployment rate held at an eight-year low of 4.9% even as more people piled into the labor market. Four years ago at this time, the unemployment rate was 8.3%.

But hold your horses. Within the otherwise positive Labor Department report was news that wages fell 0.1% in February, an elbow check after January’s promising 0.5% increase. Regardless, year over year growth in wages is pegged at 2.2%, slightly ahead of the inflation rate.

Ava Trade's chief market analyst Naeem Aslam said: "Now the main focus will be towards the Fed's upcoming meeting… and how they are going to play with the growth revision forecast. This will be the key element which traders will benchmark, and this will also lay down the path for a further rate hike."

Our sense is that with inflation still so quiet the Fed will hold on rates. We have to keep in mind though, that crude has been forging ahead recently (up 9.5% this week alone) and that price move could begin to inject more inflationary pressure into the American economy. Either way the Fed moves, the U.S. economy won’t be slowed down much.

It’s great to see gold regaining its old stature as a triple threat, acting as a hedge against financial disaster, a store of value and a truly useful investment that shows real growth prospects.

Without elaborating on it too much here in our limited time, let it be said that it is volatility in other markets that is steering investors toward gold, which, despite a small hit today, is up almost 20% in 2016. And, just as we had volatility on the way down in equity and oil prices, among others, we will feel anxious and slightly “off” as those markets move back up.

Interestingly, the U.S. dollar/yen pair today again favored the greenback, which is up 1/3 of a percent in late afternoon trading. That is a sign that the haven play is not high on the radar. The same thinking holds true when we look at the 10-year bond yield, which was up, briefly touching 1.9%.

Higher yields and the reciprocal decline in face cost of bonds entice buyers into the market. In short, it means that demand is slow and the haven appeal of bonds is slight.

The three major equities indexes in New York are up only very marginally at 3PM. Asia was up a bit more than the U.S., but Europe fared best as they await the meeting next of the continent’s central bank.

Wishing you as always, good trading,