Wall, Main St. Bullish On Gold Despite Jobs Data
The metal traded lower on Friday after the Labor Department released statistics showing far more jobs were created in December than economists expected. As of 11 a.m. EST, Comex February gold was down $10.40 for the day to $1,284.4 an ounce.
Theoretically, the labor data increases the odds of further monetary tightening, which hurts gold. However, some Wall Street participants look for the metal’s previous upward momentum to continue, suggesting the jobs report was a single piece of data that may not be enough to move Federal Reserve policymakers away from their recently construed stance that rate hikes may become less aggressive.
Previously, February gold had run higher by $98 from the mid-November low to the overnight high of $1,300.40, helped in large part by comments from Federal Reserve officials seen as a hint that the pace of monetary policy may pause or slow.
Twenty market professionals took part in the Wall Street survey. There were 11 votes, or 55%, calling for gold prices to rise. Six voters, or 30%, look for gold to fall, while three, or 15%, see the metal sideways or else are neutral.
Meanwhile, Main Street was the most bullish on gold than it has been in since April, with the 706 respondents in an online poll the most since mid-August. A total of 544 voters, or 77%, called for gold to rise, the most significant bullish percentage since 84% back on April 12. Another 101, or 14%, predicted gold would fall. The remaining 61 voters, or 9%, see a sideways market.
Looking back, 2018 was an off year for prognosticators after they had fared well in the previous two. From the time this reporter took over the gold survey in May 2016 through
the end of 2017, Wall Street posted a 51-33 record for a winning percentage of 61%, while Main Street was not far behind, being correct 60% of the time. However, in 2018, Wall Street fell to 23-27 for a 46% winning percentage, while Main Street came in at 24-25 for a 49% winning percentage.
This reporter noticed a trend in 2018 that might account for the off year for prognosticators. Many futures traders are short-term momentum traders, thus tend to vote accordingly. Moreover, gold zigged, zagged and was range-bound much of the year, making short-term calls based strictly on momentum more difficult.
The first survey of 2019 occurred on the same day the U.S. government released the December jobs report. The Labor Department said 312,000 nonfarm jobs were created last month, far exceeding market expectations.
“We still like it [gold] up,” said Phil Flynn, senior market analyst with at Price Futures Group. “The bad manufacturing data in the U.S. [December purchasing managers index] may cause the Fed to pause despite strong jobs as further interest-rate hikes look to be on hold. It should keep gold in its upward trend.”
Kevin Grady, president of Phoenix Futures and Options, said the strong jobs gains do not deter him from looking for higher gold prices.
“I remain bullish here,” Grady said. “Gold is currently under pressure because the market is viewing the strong nonfarm payroll number as a potential sign of a rate hike in 2019. I totally disagree. This is one number, and I still believe that we are looking at zero to one potential hike in 2019. The geopolitical situation (Brexit, tariffs) has not changed and the government shutdown does not appear to be close to an end.”
Grady pointed out that the SPDR Gold Shares exchange-traded fund posted the largest inflow in six years this week, which shows that investors are still getting back into the gold market. Further, he added, some 60,000 new longs came into the futures market over the same period.
“I think with the current geopolitical situation in the U.S. and also because of the huge volatility in stock markets, I would expect to see higher prices in precious metals,” said Afshin Nabavi, head of trading with MKS (Switzerland) S.A.
Adrian Day, chairman and chief executive officer of Adrian Day Asset Management, also called for higher prices.
“Gold now has some momentum behind it,” Day said. “Stock-market volatility and the government shutdown -- and more broadly the new Democratic House and threat to investigate President Trump -- support gold.”
Richard Baker, editor of the Eureka Miner Report, looks for gold to bounce back to $1,290.
“This morning's blockbuster labor report has given a boost to the U.S. dollar that had been falling towards its 200-day average from an early-December peak,” Baker said. “Although the report indicates a vibrant domestic economy, U.S dollar support will eventually fade if U.S.-China trade tensions are not soon resolved. The shadow of soaring deficits may also start to eclipse dollar strength. Whether the Federal Reserve will continue its trajectory of rate hikes on this latest data is a key development to monitor.”
Meanwhile, Ole Hansen, head of commodity strategy at Saxo Bank, looks for gold to give up some of its recent gains.
“After rallying by $138 since August and following its best quarterly performance since Q1 17, gold looks set to pause after briefly touching $1,300/oz,” he said. “Given the recent strength and changed sentiment towards safe-haven assets, we suspect a correction could run out of steam before $1,265/oz; bulls may only begin to worry on a break below $1,250/oz as the potential for further gains into 2019 remain elevated.”
Sean Lusk, director of commercial hedging with Walsh Trading, figures there could be a profit-taking pullback in gold if there is progress in U.S.-China trade talks. U.S. and Chinese officials at the vice minister level are scheduled to meet in Beijing on Monday and Tuesday.
“Given today’s jobs number, maybe we go from a slight risk-off to a risk-on in equities,” he added. Later, Lusk added, “We’ve had a nice run-up [in gold]. Maybe we have a little profit-taking.”
Daniel Pavilonis, senior commodities brokers with RJO Futures, also figures gold could ease some if equities recover.
“We had a nice little run-up [in gold], Pavilonis said. “I’m not so sure it’s the end of a big rally, but I think it’s going to come off.”
Independent technical analyst Darin Newsom said lower. As of his e-mail, February gold was testing the $1,287 technical level as it completes a secondary (intermediate-term) five-wave uptrend on its weekly chart. “This also has weekly Stochastics in position for a bearish crossover above the overbought level of 80% (actually above 90%),” he said. “This combination would signal a move to a new three-wave downtrend.”
Colin Cieszynski, chief market strategist at SIA Wealth Management, described himself as neutral for the short term.
“Gold has had a great run up toward $1,300, where I think it could encounter some resistance and may need to pause for a week or two to digest recent gains and work off an overbought RSI [Relative Strength Index],” he said. Otherwise, he added, “the underlying trend for gold remains positive.”