Gold Loses Sheen on Uncertainty over U.S. Rate Hikes

Gold to remain unsettled through the September Employment report

g1Gold prices slumped to a six-week low on Tuesday, August 30th, 2016, after Federal Reserve Chairperson Janet Yellen’s speech in Jackson Hole, Wyoming, hinted that at a gradual rate hike combined with further asset repurchases were part of the Fed’s strategy to stabilize the U.S. economy. After Yellen’s speech, the dollar rose while U.S. stocks fell, as investors failed to interpret the timing of a U.S. interest rate increase.

In her much-awaited speech, Yellen has expressed confidence that tighter labor markets will push inflation to the Fed’s 2% goal over a period of time, although she gave little clarity on the timing of such a move. Yellen was expected to provide guidance on the interest rate policy in the near term, which will have the biggest impact on short-term market moves. Yellen’s highly anticipated speech had a hawkish tone, and she said that the timing of the rate hike will be based on how the labor market and inflation data unfold in September 2016. While Yellen pointed to improvements in the U.S. labor market and expectations for moderate economic growth, she did not lay out a clear roadmap for what the Fed needs to see to raise rates.

Yellen said that the continued solid performance of the labor market has strengthened the probability of a U.S. rate hike as early as September 2016, if the August 2016 jobs data maintain the same pace as seen in July 2016. The focus now shifts to the U.S. Department of Labor’s data on August employment to be released on September 2nd, 2016, providing the Fed a chance to review its interest rate policy in the near term. Non-farm payrolls are seen as a key measure of the strength of the U.S. labor market. Employers are expected to show 180,000 job gains in August 2016, below the robust job additions of 255,000 in July 2016.

Moreover, U.S. consumer confidence rose to an 11-month high in August 2016, weighing on U.S. stocks due to concerns about a rate hike this year, while the dollar rose 0.5%.g2

Spot gold rallied 1.5% to $1,341.60 an ounce, but finished the week down 1.5% after the dollar rallied 0.7% following Fed Vice Chairman Stanley Fischer’s suggestion on Friday, August 26th, 2016 that rate hikes were on track for this year. Spot gold fell 1.5% to $1,341.60 an ounce and the U.S. dollar index fell 0.6% after Yellen spoke. U.S. gold futures for December delivery settled down 0.8% at $1,316.5 per ounce on August 30th, 2016.g3

Market watchers believe that gold will remain unsettled through the September Employment report. Gold is highly sensitive to rising U.S. interest rates, which increase the opportunity cost of holding bullion, while boosting the dollar, in which it is priced.

Silver was up 0.6% at $18.60 an ounce, after hitting an eight-week low of $18.46 on Thursday, August 25th, 2016.g4

Platinum was down 0.01% at $1,068.40, after falling to a 7-1/2-week low of $1,057. Palladium was 0.1% lower at $683.30.g5

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