Gold Jumps on British Stimulus

August 4th, 2016 by

raining-poundsThe Bank of England’s monetary policy committee did not disappoint markets today, voting unanimously to cut their benchmark interest rate in half to 0.25%. The 9-0 decision is the first interest rate cut in the UK since 2009. The central bank will also crank up the money presses again. The new QE program will purchase £60 billion in government debt over six months, and £10 billion in corporate bonds over the next 18 months. The BoE’s last quantitative easing program ended in 2012.

Gold prices jumped on the news, erasing overnight losses. Spot gold gained $5.00 an ounce shortly after the BoE announcement, while December gold futures recovered to near yesterday’s settlement. Silver prices pared overnight losses, but are trading in a narrow range above and below unchanged.

Precious metals are working against the headwind of a stronger dollar this morning, which is keeping them in a narrow channel. The British pound and the euro both are lower after the Bank of England’s announcement. The dollar and yen continue to be range-bound.

charting gold priceThis range-bound trading in gold and silver is allowing them to digest recent gains, to form a floor for the next leg up. Gold prices are still near highs for the year, set early last month. August is traditionally a very slow month for both precious metals and stocks, but the world’s major central banks have warped the natural order of things.

In other markets, crude oil futures are choppy around unchanged, after a huge 3% gain yesterday that pushed WTI back above $40 a barrel. Oil prices had been under pressure due to gasoline stockpiles nearing record levels. If refineries run out of room to store finished products, they will buy less oil. These fears were calmed yesterday, when the US Energy Information Administration recorded gasoline stockpiles dropping 3.3 million barrels, far more than expected. This news overrode the bad news of a crude stockpile build of 1.4 million barrels, where a 1.4 million barrel draw was expected.

First-time jobless claims for last week rose by 3,000 applicants to 269,000. This was slightly above expectations. Surprise layoffs in the energy sector contributed to this number. With the price of oil rising, analysts have expected a wave of new hires as companies increase drilling.

employmentYesterday’s ADP private payrolls report had the US economy gaining 179,000 new jobs last month. Economists had expected a more modest 165,000 jobs. The ADP report has increased expectations for tomorrow’s official non-farm payrolls announcement. The last two months have shown unbelievably wild swings, from 11,000 new jobs in May (that’s not a typo) to 287,000 the next month. The average estimate for July is 180,000 new jobs, but that’s assuming the report returns to a semblance of reality.

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product