There is an adage when investigating a crime that says “follow the money”. Similarly, when examining where the gold price is headed in the near term, it is wise to follow upcoming reports. Two major reports will determine the near-term direction and price of gold. The first report is tomorrow’s jobs report and the second report is the next September CPI inflation report to be released on October 13.
The forecast for tomorrow’s jobs report according to FactSet is expected to see a 250,000 job increase in September, which would be lower than the 315,000 new jobs added in the previous month. Bloomberg’s forecasts come close, predicting another 260,000 new jobs will be created in September. The Wall Street Journal expects Friday’s jobs report to show an additional 275,000 new jobs added last month. In other words, expectations for tomorrow’s report are fairly aligned and consistent.
If these various predictions are correct, this would be the slowest month of job growth since December 2020. However, analysts and economists will focus on whether the labor market is showing signs of contraction as a positive indicator. In other words, in the case of tomorrow’s report, good news would be bad news for US stocks and gold. This is because slower growth in terms of added jobs would help the Federal Reserve slow the pace of rate hikes in its battle to bring down the 40-year high and inflation.
This week’s ADP jobs report in the private sector showed 208,000 additional jobs added last month. These figures exceeded expectations and forecasts. If tomorrow’s jobs report comes in above estimates, it would harden the Federal Reserve’s determination to continue raising interest rates at an extremely rapid pace.
But the most important report that the Federal Reserve will use in their monetary policy decision-making process is next week’s CPI inflation report for September. It will provide clear and undeniable evidence as to whether or not recent Federal Reserve measures have begun to ease inflationary pressures. Currently, the CPI inflation index stands at 8.3%, down 0.2% from 8.5% the previous month. However, the latest data on the Federal Reserve’s preferred inflation index, the PCE, showed that inflation rose slightly from the previous month.
According to the CME’s FedWatch tool, there is a 68.7% chance that the Federal Reserve will raise interest rates by 75 basis points for the fourth consecutive time. This would bring the Fed Funds rate, which is currently 300 – 325 basis points, to 375 – 400 basis points on Nov. 3, the last day of the November FOMC meeting.
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