Gold prices in New York jumped in morning trading, after the dollar fell 1% on news that employment costs in the U.S. rose at the smallest rate ever recorded.
Spot gold surged $15 an ounce to break over the $1,100 mark before settling. The large move in the dollar may have been speculators using the labor cost report as an excuse to book profits on the last trading day of the month.
Gold Faring Fairly Well in Commodity Rout
While gold looking to end July down around 7%, the drop in Chinese demand for commodities this month has hit other sectors far worse. Crude oil is expected to record a 19% loss in July, with broad-based commodity funds down an average of 10%. Copper is set to finish the month 9% lower. Perhaps the only bright spot in commodities this month has been tin, which is seeing supply shortages triggered by Indonesian demands that ore be processed in-country rather than shipped out as-is.
Another Disrupted Summer Cycle for Gold
This is the second year in a row that the normal summer "quiet time" for gold has been disrupted by an international crisis in Europe. In 2014, it was the invasion of Crimea and outbreak of civil war in Ukraine, and this year was the brinksmanship of the Greek debt crisis.
Looking back to July 2013, a large "not for profit" sell-off in gold caused prices to plunge and physical demand to soar. We saw a replay of that this month, which once again sparked shortages in the physical gold and silver markets as investors snapped up everything in sight.
The price drop counteracted the recent strength in the dollar, allowing retail buyers to come into the market off the sidelines.
Markets will probably remain a bit antsy for the next six weeks, as traders look towards an increasingly-probable interest rate hike by the Fed. Even if benchmark rates do rise, it will be a miniscule amount that will leave the Fed behind the markets. Negative real interest rates lower the opportunity costs of holding physical gold, making it more attractive than money market funds or certificates of deposit.
Labor disputes in the South African gold mining sector are threatening to devolve into strikes today. This may intensify supply chain concerns as mining companies scale back operations elsewhere.