Posted on August 07, 2015
Gold is seeing a bid today following the release of the non-farm payrolls data for July. Gold is approaching the $1100 per ounce mark as short covering and bargain hunting drive price action. Crude oil, stocks and the dollar are all weaker this morning.
The U.S. Department of Labor released the highly anticipated non-farm payrolls data for July earlier this morning. According to the department, the country added 215,000 jobs while the unemployment rate held steady at 5.3 percent. Consensus estimates were looking for an increase of 212,000 jobs with the rate holding steady. In addition, upward revisions added another 14,000 jobs to the prior two months total. Wages showed some strength climbing by .2 percent with the year-over-year rate at 2.1 percent.
While these numbers are by no means earth shattering, they do point to strength and will likely fuel speculation of a rate hike by the Fed in September. If the non-farm payrolls data for August comes out in similar fashion, a rate hike could potentially become a sure thing.
The selling in gold has potentially run its course. This report bolsters the notion of an upcoming hike from the central bank, and with a degree of uncertainty removed, perhaps gold can now find some solid footing.
The gold bulls have held the market at a 5 1/2 year low, and the market has largely moved sideways in recent trade. This may be another sign that the sellers have dried up. This, in turn, may potentially cause further short covering in the market place. In fact, given the sizable short position and negative sentiment surrounding gold recently, a short covering rally could be significant in nature — even possibly taking prices higher by $100 per ounce or more.
The strong likelihood of a rate hike may be just what the gold market has been looking for. Markets hate uncertainty, and with less uncertainty in the marketplace, long-term investors may be more willing to take positions.
While the gold market has likely discounted an initial rate hike already, the bulls may see some renewed signs of life once the hike actually takes place. Stocks are seeing some selling pressure today based on the notion of rising rates and weakness in equities could potentially benefit gold and precious metals.
Despite the strong case for a September rate hike, the pace of rate hikes is still likely to be slow. This could also potentially benefit the gold bulls. The dollar is slightly weaker this morning following the data and further weakness in the greenback could potentially cause even more gold bears to head for the exits thus possibly driving prices higher.
The real test for gold will come on any significant rally. Rallies are likely to be sold into, but if the market can sustain some upside, it could fuel fresh buying interest.