Gold has ticked higher in the Monday session. In North American trade, the spot price for an ounce of gold is $1269.13, down 0.56% on the day. On the release front, US indicators were impressive. CB Consumer Confidence jumped to 125.9, well above the forecast of 121.1 points. Chicago PMI improved to 66.2, its highest level since March 2011. Wednesday will be busy. The US will release two key events – ADP Nonfarm Payrolls and ISM Manufacturing PMI. As well, the FOMC will release its monthly rate statement.
The US consumer is optimistic about the economy, and that confidence has translated into stronger spending. CB Consumer Confidence jumped to 125.9 points, and last week’s UoM Consumer Sentiment climbed to an all-time high of 100.7 points. Personal spending gained 1.0% in September, its sharpest gain since April 2016. The strong reading comes on the heels of Friday’s UoM Consumer Sentiment Report, which hit an all-time record in September. Consumer spending is a key driver of the economy, accounting for two-thirds of economic growth.
The Federal Reserve is also in focus this week, with the release a rate statement on Wednesday. The Fed will almost certainly refrain from a rate hike, so analysts will be combing through the rate statement, looking for clues about future rate moves. The markets have priced in a December rate hike at whopping 96 percent, and the markets are looking for clues with regard to rate policy in 2018. This will depend to a large degree on the new chair of the Fed, who will take over from Janet Yellen in February. The two front-runners, John Taylor and Jerome Powell, have very different stances on monetary policy, which has created some suspense ahead of President Trump’s nomination. Trump is expected to choose the new head before departing for Asia at the end of the week. Powell is expected to continue Yellen’s incremental approach to raising rates, while Taylor is a proponent of much higher rates, as underscored in his "Taylor Rule", which calls for higher rates when inflation is high or the labor market is at full capacity.
Gold prices move inversely to interest rate hikes, so traders should keep a close eye on the Bank of England, which is widely expected to raise rates for the first time since 2007. Still, there is some dissension in the BoE, as some policymakers are against a rate hike. Both sides can point to economic data to make their case. Inflation is running close to 3 percent, and a rate hike would help curb inflation and bring it closer to the BoE target of 2 percent. Opponents of a hike point to an economy that has softened in recent months and argue that a rate hike would raise the pound, hurting exports. Although a rate hike is price in at 9o percent, the sheer significance of a rate hike could weigh on gold prices.
