Strong U.S Jobs Report Strengthens U.S Dollar

Undeniably the most important economic data to be released this month is the U.S. Labor Department’s jobs report which came out today. Economic estimates for new non-farm jobs for the month of August came in at 190,000. The actual data released today came in above expectations and forecasts revealing that 201,000 new nonfarm jobs were added last month.

These solid numbers are the last and most important data set that Federal Reserve will look at during the next FOMC meeting scheduled to begin on September 26.

Yesterday the CME’s FedWatch tool predicted that there was a 99% probability that the Federal Reserve will announce and implement another rate hike of a quarter percent at the end of this month’s meeting. Today following the release of the jobs report the probability of a rate hike according to the FedWatch tool is now at 99.8%.

Higher interest rates are incredibly supportive of the U.S. dollar. The dollar index is currently fixed at 95.335, after today’s net gain of 0.347 points (+0.37%). Dollar strength was 100% responsible for today’s decline in gold prices.

As of 4:00 PM Eastern standard time, spot gold was fixed at $1,195.90, after subtracting the $3.60 decline posted today. According to the KGX (Kitco Gold Index), traders bid up the precious yellow metal by $0.95 today. However, dollar strength caused gold prices to decrease by $4.55.

Gold futures are down $2.50 on the day, with the most active December Comex contract currently fixed at $1,201.70. Gold closed lower on the day, as well as closing lower on the week. Marking the second consecutive week in which gold is traded to lower pricing.

In an interview with MarketWatch, Rob Haworth said, “We remain cautious on gold over the rest of the year, with the Fed on pace to meet its planned rate increases supporting a stronger U.S. dollar. Growth outside the U.S. is unlikely to deteriorate into recessions this year, limiting safe haven demand for gold.”

The New Normal – Quantitative Normalization

With an interest rate hike by the Federal Reserve this month basically etched in stone, the question becomes whether this rate hike will be the final hike of this year or if the Federal Reserve intends to raise rates in both September and December. The Federal Reserve has pledged to move their monetary policy from accommodative to a period of normalization. As such, whether the Fed raises rates one or two times this year is just a matter of timing because it is not if interest rates are going higher, but rather when.

Wishing you as always, good trading,