Gold News

Gold Price 'Holding Well' vs. 50% Odds of Fed Rate Rise in Sept as ADP Jobs Data Miss Forecast

GOLD PRICE gains of 0.7% were reversed in late London trade Wednesday, taking wholesale bullion back to $1085 per ounce as the Dollar rose despite new US jobs and trade data badly missing analyst forecasts.
 
Only a "significant deterioration" in US economic data will dissuade Federal Reserve governor Dennis Lockhart – widely seen as a 'centrist' – from voting to raise rates in September, he told the Wall Street Journal yesterday.
 
"I think there is a high bar right now to not acting, speaking for myself," he said.
 
Ahead of Friday's official non-farm payrolls estimate, today's figure for additional US jobs in July from private-sector payrolls provider ADP came in at 185,000, lagging Wall Street's average estimate by 30,000 – the worst 'miss' below consensus forecasts since April.
 
The US balance of imports and exports meantime showed its worst July trade deficit since 2011, more than $1 billion wider than analysts predicted at $43.8bn.
 
The Dollar rallied against the Euro however, pushing the single currency back 1 cent from an earlier rise above $1.09 on the FX market.
 
That held the gold price in Euros unchanged for the week at €998 per ounce, just shy of what were 15-month highs when bullion rose sharply at the start of this year.
 
"The market responded [to Lockhart's comments] by pricing in a rate hike in September with a likelihood of 50%," note commodities analysts at German bank Commerzbank – the strongest odds priced by interest-rate traders so far in 2015.
 
"Against this backdrop," Commerzbank says, "we believe that gold is still holding its own relatively well...We assume the gold price will remain under pressure until the first interest rate rise. The price should climb again just as soon as uncertainty over the timing diminishes."
 
"The market," agreed a note from analyst David Jollie at market maker Mitsui Precious Metals last week, "should not be surprised when rates rise. This has been signalled in advance by the Federal Reserve for a long period of time.
 
"Once rates do start to rise, the market will have to focus on other issues...and sentiment [on bullion] could simply become more bullish as a result.
 
"We remain positive that gold prices should be higher at the end of the year than they are currently."
 
Silver tracked gold prices in London trade Wednesday, easing below $14.60 per ounce to stand 1.5% beneath last week's finish against gold's 1% Dollar drop.
 
Today meantime in China – source of the world's largest private demand in H1 2015 – Tuesday's zero volume on Shanghai's international gold bourse was followed by light trading in the iAu9999 kilobar contract.
 
It closed however at a discount to comparable London quotes – the global price benchmark – of $31.50 per ounce, some 2.9%.
 
That contrasts with an average premium of $1 per ounce above London since the SGEI was launched last September.
 
Shanghai's main domestic contract closed solid trade Wednesday at a premium of $2 per ounce, in line with the last 6 months' average.
 
World No.2 consumer nation India will likely import some 900-1000 tonnes of gold this financial year, reckons Rajesh Khosla, managing director of government-backed refiner MMTC-PAMP – matching or beating the last fiscal year's total by weight.
 
The lower gold price, however, could cut India's gold import bill by almost one fifth, Khosla says, easing pressure on the country's heavy Current Account Deficit.

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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