Gold Stays Steady as Positive Data and Rate Concerns Kick In

The services sector accelerated in September, reaching its highest level in 11 months, according to a closely followed report released Wednesday.

The Institute for Supply Management’s services index rocketed – and that’s no overstatement – to 57.1% in September from 51.4% in August. Any reading over 50% indicates improving conditions.

The group’s reading on business activity also zoomed, up 8.5 points to over 60. Moreover, the index for new orders jumped 8.6 to over the 60 mark on the index as well.

ISM was also optimistic on its employment outlook, not because of the growth in gross numbers but because excess employable labor is being sucked into the job market at a dizzying rate. Essentially, if you have a good education and background, technical or college and college-plus, you can get a job somewhere in the United States, and probably near you except in a few stagnant areas.

What the larger implications for all this are that these kinds of figures are harbingers of inflation. So, couple almost-full employment with the threat of perkier inflation rates and we have a recipe for…?

Higher interest rates. This is why we are hearing more often and more vocally from Fed rate hawks. However, we still think December is the most likely month for a rise.

Gold, as we said up top, is virtually unchanged. Silver is up less than 0.20% on the day. “Wait and see” is the phrase of the day.

Oil is flirting heavily with the $50 per barrel mark and if it runs through that level substantially we may be looking at new benchmark highs and lows for the current trading period. The rise in oil helped energy stocks. Financial issues also were buoyant for the session, as banks and big trading houses are growing (slightly) warmer toward the prospect of an interest rate rise.

Hanging around the water-cooler, one would be inclined to say: “Really? All your hopes and dreams will be pummeled into dust because rates rise a quarter of one percent?” Of course, the thought is ludicrous.

Some items to watch in the next few days:

The pound should bounce after taking an extraordinary beating. The yen will continue to be soft, especially right now against the euro.

The U.S. 10-year bond yield will probably cross the 1.80% threshold if the jobs report is in a normal range. That would keep a lid on precious metal prices, although there should be plenty of bargain hunters once China comes back from holiday this week.

As the time for the election draws nearer, look for it to have a more powerful effect on markets, especially if the battle starts to seesaw. Volatility in that race will mean volatility for traders and investors.

The VIX volatility index did, however, trade lower by around 6.00%, falling below 13.

Wishing you as always, good trading,