Return of Economic Cloud is Bullish for Gold

Not so fast. Just when markets were anticipating the Federal Reserve would yank the golden punchbowl that has helped support gold prices since the beginning of the COVID-19 pandemic, it appears the party is not over just yet for the precious metal.

The U.S. economy in August created only one-third the number of jobs forecasters had anticipated—just 235,000 new positions—implying that the Delta variant of COVID-19 is causing a slowdown in hiring and economic growth. That means the central bank will likely feel a need to continue greasing the wheels of the economy by pumping tens of billions of dollars into the financial system through purchases of Treasury bonds and mortgage-backed securities. It had been widely anticipated the Fed would begin tapering its massive bond-buying program in September.

If the hiring slowdown persists, the Fed will also feel pressure to continue holding short-term interest rates near zero, rather than beginning to hike interest rates, a change that has been widely predicted for next year.

Both central bank policies—injecting billions of dollars into the financial system and maintaining near-zero interest rates—are bullish for gold. After news of the weak jobs reports on September 3, the price for an ounce of gold climbed to a five-week high of $1,830.