Gold Prices at 12-Month High on Strong Momentum
Gold prices recently hit $1,350 an ounce on mounting concerns about the strength of the U.S. economy, the weak U.S. dollar, and escalating tensions with North Korea. Bullion may be a at a 12-month high and some analysts are predicting a pull-back, but ongoing economic and political concerns could lift gold prices to $1,400 an ounce in the near-term.
On the economic front, U.S. August job growth was weaker than expected with the economy adding just 156,000 positions. Economist were expecting the U.S. to create 200,000 jobs in August.1
To add to the growing concerns about the U.S. economy, the unemployment rate ticked up to 4.4%. Meanwhile, U.S. wage growth continues to disappoint with hourly wages increasing just $0.03 in August to $26.39; a 2.5% increase from a year ago.
Worker productivity, an often-overlooked economic measure, increased at a 1.15% annualized rate in the second quarter. Despite the decent number, the long-term trend remains weak. This suggests it will be difficult to achieve strong, sustainable economic growth.2
The U.S. dollar Index, which is a measure of the greenback against a basket of foreign currencies, has fallen more than 10% since the start of 2017 at 91.89. The U.S. dollar is at its lowest levels since May 2016.
Concerns about the U.S. economy and strength of the U.S. dollar have made many wonder whether or not the Federal Reserve will delay future interest rate hikes this year. Gold is priced in U.S. dollars and is sensitive to domestic interest rate hikes. Delaying an interest rate hike would further weaken the greenback and support gold price.
Tensions with North Korea are also helping buoy gold prices. North Korean leader Kim Jong-un continues to ramp up his rhetoric with the U.S. and its allies. Adding fuel to the fire, the Korean Asia-Pacific Peace Committee (which is responsible for North Korea’s relations with the outside world and propaganda) said “Japan is no longer needed to exist near us.” Adding, it would also “reduce the U.S. mainland into ashes and darkness.”
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- “The Employment Situation, August 2017,” Bureau of Labor Statistics, September 1, 2017; https://www.bls.gov/news.release/pdf/empsit.pdf
- “Productivity and Costs, Second Quarter 2017, Revised,” Bureau of Labor Statistics, September 7, 2017; https://www.bls.gov/news.release/pdf/prod2.pdf
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