Spot gold opened only marginally lower on Friday morning before briefly moving into positive territory by 9:45 am EST. It was a strong two-week showing for the yellow metal, which has touched its highest price levels (near $1,185/oz) since late June and is now back to break-even on the 2015 calendar year.
This was even in spite of consumer comfort gauges hitting a 4-week high and the trade deficit through the fiscal year (ended September 2015) posting an 8-year low. The University of Michigan report showing that consumer sentiment surged in October helped push gold back just barely into the red (0.03% lower) around 11 am EST. This speaks to the continued strength for gold in the face of consolidation.
Many expected gold to consolidate after a solid start to October, as presumably some traders would be willing to take profits after the metal rallied about $70 per ounce over the course of two weeks. The metal remained steady, however, apparently forming new support above the $1,179 mark, which had previously been a key resistance level.
To close out September, gold was around $1,115/oz. Over the course of the first two weeks of the fourth quarter, it has added about 6.25%, advancing to $1,185/oz. For reference, on January 1st, the gold price was $1,182/oz.
Meanwhile, silver was flat yesterday at $16.20/oz. It opened about 5 cents lower on Friday morning.
Market Response to Data
The 9% drop in the U.S. budget deficit year-on-year brought it to its lowest levels since 2007, and were also a good sign for equities markets, which were rallying around the globe on Friday morning. The tighter deficit does mean, however, that the U.S. won't have to issue as much debt to cover its smaller budget shortfall. This means the supply of new Treasurys is going to be more limited than normal; even if other countries (like China) were to dump a lot of their own Treasury bond holdings, these are invariably going to be further along in maturity and won't contribute to the market for fresh U.S. debt. In all likelihood, this will keep yields on U.S. bonds lower than they would normally be—perhaps leading to gold as a more attractive safe-haven alternative. Even if there isn't the kind of supply crunch in Treasurys like "Bond King" Bill Gross has predicted, these debt instruments still ought to see slightly less demand than usual due to less attractive yields.
Meanwhile, factory productivity fell for the second consecutive month in September. As usual, the economic data in the U.S. was an almost entirely mixed bag. The dollar was about a quarter of a percentage point higher on the DXY, while Wall St saw volatile trading even in positive territory. We can expect a bit more volatility during Friday's session if only because Saturday is the options expiry for stocks, making Friday the last trading day before contracts must be closed out. The gold options expiry doesn't fall until October 27th.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.