After treading water in flat trading in Asia, the gold price fell more than $10 per ounce on Wednesday morning following a series of optimistic economic numbers from the U.S. Department of Commerce and the Bureau of Labor Statistics (BLS). This has boosted confidence in the economic outlook, eating away at safe haven demand.
The markets will also closely be watching crude oil as OPEC is concluding a meeting in Vienna, Austria this morning.
Spot gold tumbled about 1% into the red at $1,176/oz, its lowest in nearly ten months—since early February. Silver prices were also moderately lower at $16.50/oz, their weakest in over five months.
Rosy Economic Numbers
This morning’s data on private sector payrolls, consumer spending, and incomes follows the second reading for GDP growth in the third quarter coming in above expectations at 3.2%. This was already taken as a sign of robust economic performance in the U.S., and today’s release of more encouraging numbers adds still more fuel to the rally in market sentiment.
The Commerce Department reported that the pace of consumer spending increases was moderate, but the rise in wages and salaries during September and October was even stronger than had been forecast. If workers have more money in their pockets, a rise in spending goes hand-in-hand.
Expectations for the U.S. economy as we finish the fourth quarter also got a boost from a significant beat in the ADP payrolls report. The private sector is estimated to have added 216,000 jobs this past month, which far exceeds median predictions. We’ll have to wait until the official numbers from the BLS are made public to confirm the size of the gains. Of course, revisions and adjustments of past employment data are hardly uncommon.
Most observers are expecting the gathering of oil cartel OPEC to lead to some deal between the member countries regarding a production cut. While Saudi Arabia has loudly supported (and then wavered) on its support for the cuts, Iran was rumored to be holding out on decreasing its oil output by as much as other members wanted. The mercurial group of oil-producing nations could always surprise us, but markets seemed convinced a deal is in the works. Crude prices popped better than 8% during early trading on Wednesday.
Tensions in Europe
One factor that may provide a lift to safe haven demand for the precious metals has been the ongoing political and economic uncertainty in Europe. The successes of the “Leave” campaign for Brexit and President-elect Donald Trump have energized and emboldened populist movements across the continent. The doubt about whether a wave of populism would translate into protectionist trade policies has many experts worried for the global economy.
Besides the likelihood that National Front party boss Marine Le Pen will be in the run-off election for French president next year, there could also be a populist shakeup in Italy’s government. Prime Minister Matteo Renzi has staked his mandate to govern on a national referendum next week. Should the plebiscite result in voters rejecting Renzi’s proposed constitutional reforms, the populist Five-Star Movement could sweep into power. Although he is not bound to do so, the prime minister has vowed to step down if the vote goes against his party, much like David Cameron after the Brexit referendum. Austria’s presidential election also seems likely to be won by a far-right party. This could all cause a chain reaction across Europe.
Politics aside, European banking also remains on uncertain ground. The Bank of England’s governor, Mark Carney, recently got into a verbal spat with European Central Bank (ECB) President Mario Draghi (who hails from Italy), in part over the handling of Brexit.
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