The gold market is seeing some solid upside today following the release of the non-farm payrolls data for November. According to the U.S. Department of Labor, the U.S. added 211,000 jobs last month while the unemployment rate remained steady at 5 percent. The jobs numbers for September and October were also both revised higher.
Today’s jobs data will likely further cement the Fed’s plans for a rate hike this month. Stocks are sharply higher following the jobs data while interest rates are falling and the dollar index moves up.
The last 24 hours have seen some volatility in the currency and treasury markets. Yesterday, the ECB served up some fresh stimulus measures that fell well-short of market expectations. Both European and American stock markets saw heavy selling following the announcement. The euro currency, on the other hand, saw heavy buying and rose more than four cents against the dollar.
The rally yesterday in the euro is significant for a few reasons. First and foremost, the rally could potentially mean a top has been reached in the dollar index. A stronger euro/weaker dollar could potentially fuel buying in gold and the precious metals complex. Secondly, the rally likely caught many investors off-guard and possibly forced liquidations as margin calls had to be met. This could have also contributed to the selling in U.S. equities yesterday and could potentially mean further downside in stocks.
The ECB’s move had the opposite effect of what the central bank is looking for. The euro rose, stocks fell and government bond prices also declined.
If the euro can continue to move higher against the dollar, gold and precious metals may potentially be in a position to rally further. Gold is up over $24 per ounce as of this post and is likely catching many shorts off-guard, as well. The move in gold yesterday and today appears to be taking place on heavy volume, as well, which could be indicative of short covering and fresh buying taking place.
While the notion of a rate hike this month is “old news” at this point, it remains unclear just how markets will react once the Fed does act. While stocks have returned to near all-time-highs in recent months, the stock market could be vulnerable to a sell off that could potentially drive more buying in gold and other alternative assets.
Stocks could stay strong to finish out the year even in spite of a rate hike, and gold may trade slightly higher to sideways. The first quarter of next year, however, could prove to be very interesting with a number of potential issues driving global equity, interest rate and currency markets.
