Gold ETFs are rallying with the precious metal hitting a six-month high following a weak nonfarm payrolls report for August that increases the chance of more Federal Reserve stimulus.
The weaker-than-expected US jobs numbers on Friday were the catalyst for gold to move higher, after holding firm around US$1700/oz following the ECB’s announcement of a new bond purchasing scheme on Thursday.
Whether the 96,000 new jobs created in August will prompt the US Fed to introduce new stimulus measures at this week’s FOMC is a close call. [Tom Lydon: Why Gold ETFs are Shining]
On one hand, the number of jobs created in recent months is far less than the 150,000 jobs per month indicated by the Fed as necessary to cause a sustainable reduction in the unemployment rate.
Communication from Fed officials, most recently by Bernanke at the Jackson Hole conference, has highlighted the importance of bringing the jobless rate down. On the other hand, with the risks posed by the ‘fiscal cliff’ likely to receive greater attention in coming months, the Fed could conceivably wait for further signs of stress before using what many consider potentially the last major ammunition at its disposal. [Gold ETFs Rally on Fed, ECB]
Either way, it appears QE is on the way, and investors are moving into position for this scenario. It is worth noting that despite the sharp rise in futures net speculative longs over the past month, net longs still remain back at early 2009 levels, indicating potential substantial further scope for long investors to move in if positive fundamentals continue to align.