Gold Futures Retain Defensive Posture In Countdown To Friday Payrolls

(Kitco News) - Gold futures hit a two-month low Wednesday before steadying themselves in the second half of the session as traders continued to mark time ahead of the key U.S. nonfarm payrolls report due out at the end of the week.

As has been the case so far this week, traders continued to cast one eye back on some of the hawkishly construed comments from Federal Reserve officials at their Jackson Hole symposium late last week, while looking ahead with the other eye to Friday’s jobs report. Market participants will be watching to see if the data in fact could encourage policymakers to hike interest rates again for the first time since December.

Shortly before 1 p.m. EDT, Comex December gold was $4.90 lower to $1,311.60 an ounce. December silver bounced from early weakness to trade up 7.2 cents to $18.745.

“Obviously, this recent bout of weakness has a direct relationship to the slightly rising expectations for a Fed rate hike,” said Dave Meger, director of metals trading with High Ridge Futures. “Certainly going into Friday’s jobs report, there is nervousness that a positive number could tip the scales back to higher chances of a rate hike, most likely in December but with September still on the table.”

This has lifted the U.S. dollar index lately and acted as a “hindrance” to gold and other commodities, Meger continued. The September dollar index gave up earlier gains to trade down 0.081point to 95.96 in early-afternoon trade, but nevertheless was up 1.76 points from early Friday.

At one point, December gold slid as far as $1,306.90 an ounce, before edging higher again to avoid the psychologically important $1,300 round number.

While awaiting nonfarm payrolls, traders got one other piece of labor-market news Wednesday– the ADP private-sector payrolls report. This showed a gain of 177,000 jobs in July, only slightly above consensus forecasts for 170,000 to 175,000. Market watchers tend to watch this ahead of payrolls, although often there also have been past divergences between the two figures.

Christopher Vecchio, currency analyst at DailyFX, characterized the ADP data as a “Goldilocks” report – “not too hot, not too cold.” He commented that the payrolls report is especially important because it is the last major monthly employment data ahead of the Fed’s September meeting.

“While it is considered unlikely for the Fed to raise rates in September – Fed funds futures (were) only putting chances at 27% this morning – Fed officials have been talking up the chances of a rate hike soon,” Vecchio said.

Should payrolls exceed 200,000, Meger said, this could make market participants more likely to believe in the potential for a September rate hike. So far, consensus estimates compiled by various news organizations are calling for an increase of 175,000 to 185,000 nonfarm jobs.

Prior to payrolls, market participants will have more reports to digest Thursday, including weekly jobless claims at 8:30 a.m. EDT and the Institute for Supply Management’s monthly manufacturing survey at 10 a.m. EDT.

By Allen Sykora of Kitco News; asykora@kitco.com