Gold continues to have an uneventful week and has posted small gains in the Thursday session. In North American trade, spot gold is trading at $1269.20, up 0.20% on the day. On the release front, unemployment claims edged lower to 240 thousand in July, beating the estimate of 242 thousand. ISM Non-Manufacturing slowed down to 53.9, compared to the estimate of 57.4 points. This reading was well below the forecast of 56.9 points. On Friday, the US releases wage growth and non-farm payrolls, so we could see some movement in gold prices.
The US economy is in good shape, underscored by a strong Advance GDP of 2.5% in the second quarter. This strong reading came after weak growth in the first quarter, which clocked in at just 1.4%. Still, investors are skeptical about a third interest rate hike in 2017, with current odds of a December hike at just 42%. Investor appetite for risk has waned and this has been good news for gold, which touched 6-week highs earlier this week. The pessimism on the part of markets is chiefly due to inflation, which has remained stubbornly low despite a strong labor market. In June, Fed Chair Janet Yellen said that factors causing weak inflation were "transient", but there are no signs that inflation will pick up anytime soon.
With the Federal Reserve unlikely to raise rates before December, investor attention has shifted to the Fed’s balance sheet, which stands at $4.2 trillion. Fed policymakers have broadly hinted at reducing purchases of bonds and securities starting in September, but San Francisco Fed President John Williams was more forthcoming about the Fed’s plans, likely aimed at giving notice to the markets. In a speech on Wednesday, Williams said that the economy had "fully recovered" from the 2008 financial crisis and called on the Fed to start trimming the balance sheet "this fall". Williams added that the process would be gradual and would take four years to reduce the balance sheet to a "reasonable size". On Wednesday, two other FOMC members also came out in support of starting to taper the balance sheet – St. Louis Fed President James Bullard and Cleveland Fed President Loretta Mester.
