Robust Jobs Report Pressures Gold Lower

July 5, 2019 - 6:29pm

 by Gary Wagner

If you ever questioned whether or not market participants, investors and traders have factored in the belief that the Federal Reserve will cut the current Fed funds rate at this month’s FOMC meeting, question no more. Today you received a strong confirmation that they had. It has been widely accepted that the recent rallies in both gold and US equities were deeply tied to Federal Reserve action which would result in a series of rate cuts rather than a monetary policy of normalization, or tightening.

Case in point: today’s release of the jobs report by the US Labor Department came in at a brisk 244,000 nonfarm payroll jobs added last month. However, analysts had forecasted payrolls rising by approximately 160,000 in June.

Considering that this month’s numbers were significantly higher than the previous two months, and the fact that it was well above forecasts absolutely resulted in a shift in market sentiment. Prior to the Jobs Report from the CME’s FedWatch tool revealed that there was almost a 100% probability of a rate cut this month.

The subtle difference is that on July 3rd the FedWatch tool predicted a 70.8% probability that the Fed would cut rates from 225-250 (current) to 200-225, which was revised after the release of last month’s Jobs Report and jumped to a probability of 95.1%. Also noteworthy is the fact that on July 3rd this tool predicted that there was a 29.2% chance that rates will be cut to 175 – 200, which dropped to a probability 4.9% today. The FedWatch tool is still predicting that there is a 0% probability that there will be no rate cut. In other words, the result of today’s robust numbers changed the forecast in regards to how low interest rates will be cut, but  was still assuming that’s some kind of a cut is still an absolute certainty.

Once again, we see U.S. equities and gold moving in tandem with today’s action moving both asset classes lower. Gold futures basis the most active August contract traded to a low of $1388.60, a decline of approximately $30 before recovering. As of 4:55 PM EDT gold futures are currently fixed just above the key psychological level of $1400, at $1401.10.

We can also see the breakdown of dollar influence versus selling influence when we look at the KGX (Kitco Gold Index). Spot gold is currently fixed at $1398.10, a net decline of $16.80 on the day. On closer inspection it was selling pressure that accounted for the decline.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

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