Gold Market Awaits U.S. Jobs Report; Is QE Tapering Already Priced in?
New York (Jan 9) There just might be a little more uncertainty than usual on how gold will react Friday when the U.S. Labor Department releases the monthly employment report.
Over the last year, strong reports tended to undermine gold on ideas that they would prod the Federal Open Market Committee to start tapering the bond-buying program known as quantitative easing. Conversely, weak reports were seen as pushing back tapering, thereby underpinning gold.
The picture changed some last month, however, when the FOMC finally pulled the trigger and started the tapering process. Policy-makers said they were scaling back monthly purchases of Treasury and mortgage-backed securities to $75 billion per month from $85 billion.
That raises the question of just how much gold has already factored in tapering and whether a strong jobs report will mean less downside pressure than in the past.
Economists are forecasting that nonfarm payrolls rose in December by just shy of 200,000, with some consensus estimates listing 193,000 to 197,000. The unemployment rate is expected to hold at 7%.
“The main thing is whether there is going to be anything in that jobs number that will reduce the chance that the Fed is going to change their outlook on tapering,” said Phil Flynn, senior market strategist with Price Futures Group. “Based on the ADP (strong private-sector jobs report Wednesday), it’s unlikely that anything is going to change.
“Initially, the gold market took tapering as a negative. But now, the question is, ‘have we priced in the tapering on the gold market?’ It remains to be seen (how gold will react). Now, if you get a real strong number, I don’t think it’s going to change the tapering outlook that much.”
Yet, there’s also the possibility that a strong number would be perceived as meaning that the sooner tapering ends, the sooner tightening of interest rates would begin, he added. And, should a strong number boost the U.S. dollar, then that could put initial pressure on gold since the metal often moves inversely to the greenback.
“My biggest concern as a gold trader would be if we get a blowout number on the jobs that drives the dollar higher….,” Flynn said.
Sean Lusk, director of commercial hedging with Walsh Trading, said he looks for gold to remain largely range-bound until markets hear from the Federal Reserve after a Jan. 28-29 policy meeting.
“I think we’re looking for a better (jobs) number,” he said. “I think it’s priced in a little bit. I don’t think anything major, major is going to happen. I don’t think we’re going to take out a new low in gold. If we come in around 200,000 or a little bit higher, we might see an initial break and a recovery. I think the market is really waiting for the Fed to talk later in January.”
