Gold Bounces From Lows As ISM Data Cools Odds Of Fed Rate Hike

(Kitco News) - Gold futures, on the defensive all week on worries that a strong U.S. jobs report Friday might up the odds of Federal Reserve tightening, finally got a reprieve Thursday when a widely followed U.S. manufacturing survey showed surprising weakness.

This led to a bounce in the euro against the U.S. dollar and rally in gold, which tends to move inversely to the greenback.

As of 1:16 p.m. EDT, Comex December gold was $5.90 higher at $1,317.30 an ounce. It got as high as $1,318.60 after earlier hitting a two-month low of $1,305.50. December silver gained 23.8 cents to $18.945 after an early-day low of $18.65.

The euro was up to $1.11961 from an earlier low of $1.11277.

“Initially, the gold was concerned about the strong dollar,” said Phil Flynn, senior market analyst with at Price Futures Group, of the early-day weakness in the metal.

The day started on the same script as other recent sessions – gold was mired in the bottom end of its recent trading range on jitters that a strong jobs report on Friday could be the ticket that emboldens the Fed to hike interest rates again. Traders have been anxiously awaiting the data since hawkish comments from Fed Chair Janet Yellen and Vice Chair Stanley Fischer at the central bank’s Jackson Hole symposium last week.

However, some short covering began to set into gold when December gold showed signs of holding up after briefly dipping below Wednesday’s two-month low of $1,306.90 an ounce, said a desk trader.

“It got another boost when the ISM came out,” the trader said. “There was a knee-jerk reaction with gold higher and the S&Ps lower.”

The Institute for Supply Management’s headline manufacturing index fell to 49.4% in August from 52.6% in July. It was below consensus estimates calling for 52.1% to 52.2%.

“That showed industrial production was very weak, and that really does not bode very well for the Fed raising interest rates in September, maybe even December,” Flynn said. “One of the things that hurts manufacturers, obviously, is a strong dollar. If you’ve got your manufacturing sector going into contraction, it’s going to be difficult for Fed to make a case they should be raising interest rates, which would push the U.S. manufacturing sector deeper into contraction.

“So I think we’re seeing a lifting of the bet that the Fed is going to raise interest rates.”

Additionally, Flynn cited a call from the International Monetary Fund for measures to boost the global economy.

“Well, the one thing we know, stimulating the economy probably means more money printing,” Flynn said. “That also would be a positive for gold.”

The $1,300 area has emerged as a “formidable” near-term support level for December gold, with the market holding above this despite dipping below $1,310 each of the last two days, Flynn said.

This “is a number the bears are going to have to beat,” he said. “They really had an opportunity to take it out this week and they weren’t able to do it.”

Meanwhile, the $1,350 area could be resistance on the upside, Flynn continued.

Early in the New York afternoon, the 100-day moving average below the market stood at $1,303.20.

Widely followed averages above December gold were the 10-day at $1,327.70, the 20-day at $1,337.60 and the 50-day at $1,341.30.

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