Gold prices remain near a two-month low this morning, as recent economic data adds to the odds of the Fed raising interest rates as early as this month. Beats in jobless claims and labor cost reports lower the bar that tomorrow's non-farm payrolls report has to clear to give the green light to Janet Yellen to raise benchmark interest rates in three weeks.
Across the Atlantic, Brexit alarmists seem like the boy who cried wolf again, as UK factory activity hit a 10-month high last month, thanks to the much weaker pound boosting exports. The Markit PMI report for the UK jumped to 53.3 in August from 41-month low of 48.3 in July, the best one-month improvement on record. This eases any pressure the Bank of England may be feeling to cut interest rates again.
At 10am in New York, gold is trading at $1,307.40 an ounce. Spot gold is down $1.10, while December gold futures are $4.00 lower. Spot silver is down one cent, while December silver futures are down a dime.
The dollar is trading just above unchanged this morning after first-time jobless claims were reported to have risen by 2,000 applications to 263,000. Second-quarter labor costs in the US were revised to more than double the initial estimate, to 4.3% from 2.0% Economists were expecting 2.1%
On the downside, productivity fell for the third quarter in a row, -0.6% compared to the second quarter of 2015. Rising labor costs and falling productivity is the classic recipe for stagflation.
The greenback remains on the front foot heading into Friday's even-more-important-than-ususal non farm payrolls report. Expect a large reaction tomorrow, with the direction depending on whether NFP is a beat or a miss.
Gold futures logged their first monthly loss since May as prices settled at a two-month low Wednesday. December gold lost $5.10 to settle at $1,311.40 an ounce. December silver added three cents to settle at $18.71 an ounce. For the month of August, gold futures finished 3.4% lower, while silver futures ended 8.1% lower.
On the spot market yesterday, gold closed in the middle of the day's trading range, ending $2.00 lower at $1,308.50 an ounce. Spot silver gained six cents to close at $18.62, also ending in the middle of the day's trading range.
Markets yesterday had plenty to react to and not enough volume to cushion the blows. Wednesday morning's private sector payrolls report hit gold, oil and other commodities as the dollar jumped. ADP announced 177,000 new private sector jobs were added to the US economy in August. July’s gains, initially reported at 179,000, was revised up to 194,000, pouring more fuel on the fire of rate hike fears.
Markets were already spooked by a litany of hawkish comments from Federal Reserve officials over the last week. Federal Reserve Vice Chairman Stanley Fischer has taken on the role of Yellen's point man since Friday, pushing the narrative that the Fed could hike interest rates at any time. Markets were especially shaken by Fischer's refusal to rule out multiple rate hikes.
Fed talk = higher dollar = lower gold
Oil prices continue to get hammered, as the EIA reported a larger than expected build in US crude inventories. Oil stockpiles increased by 2.3 million barrels last week, against expectations of only 600,000 more. This, coupled with a stronger dollar, sent WTI down 3.6% to settle at $44.70 a barrel. Brent futures shed 2.8% to settle at $47.04.
Even with the heavy losses this week, WTI still ended the month 7.5% higher, while Brent closed the books on August 10% higher.
Treasuries ended the month weaker, with yields on the 10-year T-note almost 11 basis points higher. This was the largest one-month increase in yields in 14 months. Bond yields are more exposed to tomorrow's non-farm payroll report than perhaps any other sector.
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