Higher yields/dollar strength pressure gold lower but its all about jobs report

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Gold closed lower today after three consecutive days of higher closes. Although gold gained value from Thursday until Monday, the major move occurred on Thursday when gold gained over $30. Friday’s gains were fractional, and Monday’s gains were respectable, but both days were dwarfed by the strong upside gains seen on Thursday. Today gold broke the cycle of consecutive higher closes with gold futures basis the most active December 2021 contract losing $6.70.

As of 5:05 PM EDT, the December contract is currently fixed at $1760.90 after factoring in today’s decline of 0.38%. Multiple factors contributed to today’s price decline, which included a stronger dollar, higher yields on U.S. debt instruments, and gains in U.S. equities. The dollar traded higher for the first time in four days, with the dollar index currently fixed at 93.985, after factoring in today’s 20-point gain (+0.22%). The 10-year Treasury note gained 0.047 taking yields from 1.482% to 1.529% in trading today.

All three major indexes had strong gains, with the NASDAQ composite having the largest percentage gain of 1.24%, closing at 14,433.6301. The S&P 500 gained 1.05% today and is currently fixed at 4345.72. The Dow had the smallest percentage gain, just under 1% (+0.92%), and closed at 34,314. 67, a gain of 311.75 points.

A combination of dollar and equity strength coupled with higher yields were the primary forces that resulted in lower gold pricing today.

U.S. Labor Department’s September 2021 jobs report

This week it’s truly about September’s jobs report. Traders, investors, and market participants are cautiously awaiting the release of the U.S. Labor Department’s nonfarm payroll jobs report on Friday, October 8. This report will most certainly have a profound influence on the upcoming actions of the Federal Reserve in regards to when they will begin to taper their monthly asset purchases. A strong jobs report would continue the more hawkish narrative of the Federal Reserve in regards to normalizing their monetary policy. It would allow the Federal Reserve to begin tapering sooner rather than later and begin the process of reducing its $120 billion monthly purchases between now and December. In contrast, a weak number could reignite a more dovish tone from the Fed.

Currently, forecasts are predicting a much stronger number than the tepid report for August. Friday’s Labor Department report is forecasted to show an improvement in the labor market, with a Reuters poll predicting that 488,000 jobs were added last month.

Friday’s jobs report will have a strong impact on the financial markets and shape the future direction of equities as well as gold prices. In the case of gold and U.S. equities it has been stated on multiple occasions that “good news is bad news” for gold and the stock market. Because a strong jobs report would accelerate when the Federal Reserve begins to taper, winding down the stimulus that the Fed has been using to aid in the economic recovery in the United States. It could result in a continuation of higher yields in U.S. debt instruments, slowing down the supply of cheap money which has fueled the rally in U.S. stocks. A strong jobs report would also have the same effect on gold pricing could result in gold prices moving lower. However, if the jobs report comes in exceedingly below forecasts as it did in August, it could slow down the tapering process of the Federal Reserve, which would create bullish undertones for both gold and U.S. stocks.

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

Gary S. Wagner - Executive Producer