Gold: Builds an US$1800 Floor
Sept 3rd 2021
Investors now seem convinced that the Fed will wait for a longer period before deciding to roll back its massive pandemic-era stimulus program. These speculations were further fueled by Wednesday's disappointing ADP report, along with the significant miss in the August U.S. Non-Farm Payrolls report issued this morning.
The combined disappointing data has raised doubts about the U.S. labor market recovery and further dampened prospects for an early Fed tapering of its massive $120B per month stimulus program (QE), which is evident from a softer tone surrounding the U.S. Treasury bond yields. The news is also keeping U.S. dollar bulls on the defensive as the greenback is trading near one-month lows that is lending support to the gold price.
With Gold Futures attempting to re-establish itself above the key $1,800 level following last week's dovish stance from the Federal Reserve's chair, Jerome Powell, the safe-haven metal is moving upwards towards stiff resistance at $1835 on the back of substantially fewer jobs were created in August.
The news has traders suspecting that the rising U.S. COVID-19 cases in recent weeks will stall the U.S. economic recovery, after all, keeping the Federal Reserve from pulling back on its massive stimulus which is bullish for the gold price.
The gold sector had otherwise been building positions around a hawkish narrative that, in hindsight, was too premature given the fact that the U.S. labor market is not as robust as first thought. On balance, Chair Powell said that while the Fed has probably got to the point where "substantial further progress" has been made on inflation "we have much ground to cover to reach maximum employment" during his Jackson Hole speech last week.
Powell also explained in his Jackson Hole speech that an "ill-timed policy move unnecessarily slows hiring and other economic activity and pushes inflation lower than desired". In an environment of "substantial" labor market slack, this could be "particularly harmful".
Moreover, the Fed is severely constrained in how much the world's largest central bank can raise interest rates, to quell rising inflation, due to ballooning and out-of-control U.S. debt. While the Fed has in one year doubled its balance sheet to around $8.3 trillion, the current national debt is now $28.7 trillion and rising, while the current debt to GDP ratio is 125.7%. And this does not include the $1 trillion infrastructure bill before the House, nor the $3.5 trillion anti-poverty and climate plan currently being voted on by U. S. lawmakers.
David Erfle
Kitco.com |
