Market Overview: Gold is seeing a solid bid in early action today as stocks sink and some risk aversion sets in following a downbeat U.S. jobs report. Gold could potentially see solid gains going into the weekend which could possibly reinvigorate the bulls and drive additional buying next week. On the other hand, a solid close lower today for stocks could see additional selling pressure next week and increasing levels of risk aversion.
Key Data Points: Without a doubt, the big enchilada for today in terms of data was this morning’s U.S. Department of Labor non-farm payrolls data. The jobs report showed a gain of just 38,000 jobs added last month while consensus estimates were looking for an addition of 158,000 jobs. This much weaker than expected report will certainly call into question whether or not the Fed will in fact raise rates later this month.
While Factory Orders data this morning did show an increase, the data was largely soft and points to some ongoing weakness in business investment. Such weakness may be just another factor that could potentially keep the Fed on hold for now.
The latest reading on ISM Non-Manufacturing also came in soft, registering a reading of 52.9 while consensus estimates were looking for a reading of 55.5. This reading points to some significant weakness in economic activity for the month of May, and could also give the Fed further reason for pause.
Outside Markets: Stocks are sharply lower following the jobs report miss this morning and other data points don’t appear to be doing the market any favors either. Stocks remain close to previous all-time highs, yet have thus far been unable to seriously challenge those levels.
Bonds and notes are moving sharply higher following the jobs report as lower yields would seem to reflect a market opinion that the Fed is now unlikely to hike in June.
The dollar is really taking it on the chin this morning, as the dollar index is down over 1.5 percent in early trade. This dollar weakness along with the idea of the Fed holding steady for now are likely driving the significant buying and possible short covering being seen in gold.
The Big Picture: Today’s data may certainly cause the Fed to think twice about a June or July hike, and some analysts may now see an additional hike not coming until September or even beyond. Today’s gains may put gold back on a bullish track after seeing some weakness in recent weeks. The real test for gold in the coming weeks may be a retest of the recent highs seen around the $1300 level. A break above these highs could potentially drive a fresh leg higher in gold as more investors may look to jump on the bandwagon.
