Tuesday, September 4, 2012
Big Ben essentially issued a blank check from the Fed, indicating the bank will take steps to inject liquidity into a slowing US economy. After very weak manufacturing numbers from Europe and China, many traders likely will shift their focus toward US manufacturing data when the ISM number is released later this morning. If the ISM number disappoints and is followed by equally disappointing job numbers, the Fed could take swift action. An injection of liquidity could be seen as extremely positive for Gold, as it could breed inflation. If, on the other hand, we see stronger numbers this week, the Dollar could strengthen, causing Gold to lose some of its appeal.
Speaking at Jackson Hole, Fed Chairman Ben Bernanke did not disappoint liquidity addicts by indicating the US central bank will supply stimulus as needed. The statement can be seen as positive for Gold futures, as more easing could stimulate growth and create conditions ripe for inflation. Eurozone manufacturing data, released yesterday, showed manufacturing contracting more than previously expected during the month of August. This comes on the heels of Chinese factory data showing a contraction for the first time in 10 months. These disappointing reports certainly indicate a high likelihood of additional central bank stimulus. In the US, the ISM is releasing its report of manufacturing activity for August. The consensus estimate is exactly 50.0, indicating analysts are not expecting growth or contraction. Overall, this is a report-heavy week in terms of job data. Thursday is a particularly report-heavy day, with Challenger Job Cuts, ADP Employment Growth, Initial and Continuing Claims, and also ISM Services data all slated to be released. Friday, on the other hand, only has Non-Farm Payroll data, possibly the most vital economic report at the present time, for traders to digest.
Turning to the October Gold chart, we see prices remaining above the wedge formation that the market broke out of last month. Thus far, there has not been an explosive move after the confirmation of the breakout. Gold may gain further technical momentum if prices are able to close above the 1700 level. The real upside test for the Gold market would be the 1800 level if the market can muster enough momentum to test it. Breaking through 1800 would put Gold into uncharted territory. Currently, the RSI indicator is at overbought levels.
Rob Kurzatkowski, Senior Commodity Analyst