Could Gold Prices Soar in September?
by David Levenstein, Gold Silver Worlds Gold prices began this week on a slightly negative note as prices drifted back towards their lowest levels since mid-August after US payrolls data failed to provide clarity on the timing of a US Federal Reserve rate hike, and as the dollar steadied against other majors. .
The U.S. unemployment rate hit 5.1%, the lowest in 7 years but hiring slowed. The unemployment rate fell from 5.3% in July to its lowest point since 2008 and is now at a level Fed officials say is consistent with a healthy economy. But employers added a moderate 173,000 jobs in August, the fewest in five months. The Labour Department report, issued on Friday, was closely watched because it will be the last snapshot of the job market before the Fed meets in two weeks. And overall, it painted a picture of an economy growing at a modest but steady pace seven years after the Great Recession.
Despite concerns about the Fed tightening, gold recorded its best month this year, gaining around, gaining about 3.4% for August for its first advance since May. During the same period, global stocks suffered losses and the S&P 500 experienced its worst monthly performance since 2012, while the Dow had its worst month since May 2010. Both the S&P and the Dow had five days of gains or losses of more than 2% in August, making it the most volatile month in nearly four years. Each major index ended the month down more than 6%. Traders still remain fixated on a potential interest rate hike from the Fed. Despite the persistence of ambiguous economic data as well as rhetoric from central bankers, and barring further turmoil in the financial markets, many market participants believe that the Fed is still on schedule to hike interest rate this year. While only 30% believe such a move will occur in September, many think the chances for a hike in October seem rather strong. As I have stated before, I am amazed at the attention this potential rate hike has been given. Whether it comes in October, November, December or next year, it will be a very small increase and it will not have a major impact on the fundamentals which are going to drive the markets.
People are also waiting to see what’s going on in China. That and the interest rate decision will be the most important factors for the gold price over the next days and weeks. As expected, the European Central Bank did not ease policy when its governing council met last week. However, the ECB underlined its determination to take further measures, if necessary, to get inflation, currently just 0.2%, back to the goal of nearly 2%. Speaking at the press conference after the meeting, Mario Draghi, the ECB’s president, stressed the council’s willingness, readiness and capacity to act.
Revised forecasts made it clear why the ECB may have to step up its quantitative-easing programme, announced in January and launched in March. Three months ago, central-bank staff envisaged GDP growing by 1.5% this year, 1.9% in 2016 and 2.0% in 2017. These forecasts have been lowered to 1.4%, 1.7% and 1.8% respectively. Mr Draghi said that the downward revisions were mainly because external demand is now expected to be weaker. Inflation is also set to be lower than previously forecast. In June, staff projections showed consumer prices rising by 0.3% in 2015, 1.5% in 2016 and 1.8% in 2017. The latest forecasts are for inflation of only 0.1% this year, rising to 1.1% in 2016 and 1.7% in 2017. These downward revisions have occurred mainly owing to lower than expected oil prices. Today’s global economy is so utterly dependent on the latest move by a major central bank, or even the latest utterance of any semi-important monetary official, it is simply ridiculous. There are no free markets anymore. It seems that real fundamental driving forces no longer apply and only hints about the next big monetary policy decision are of more importance. This obsession with “monetary policy” which tends to mislead people into what is really going on in the global economies will have no relevance once the financial system collapses. No doubt, when it happens, main-stream media will put the blame on China or Russia. It is very clear that the massive money printing experiment we have seen from central banks over the years has done nothing to stimulate economies. Global economies are under pressure and several major world economies are slipping into recession. It is obvious that China is in a major economic downturn. Stocks there have been plummeting, despite desperate attempts by the government to rig the markets. China is the world’s largest commodity consumer. In the first quarter, its economy grew at its slowest rate in 25 years. And there are signs that things could get much worse. Last month, China’s manufacturing output index had its lowest reading since 2009. Continue Reading>>>