Gold stalls in Asian trade

Gold steadied not far above a 5-1/2-year low on Monday, with a firm dollar after solid US job gains in July suggesting that the Federal Reserve could raise interest rates as early as next month. On Friday, the dollar rose as high as US$0.9885, its loftiest peaks since late March. That is an important statistic and it is not showing strength. The US dollar turned lower after Fed Vice Chairman Stanley Fischer said the global deflationary trend “bothers” the Fed but is one of many factors it is watching, stoking uncertainty about a September rate hike.

And as this chart from Deutsche Bank makes clear, manufacturing activity in emerging economies, many of which are concentrated in Asia and closely tied to China’s economic performance, has been deteriorating over the last several months.

A looming U.S. rate rise, the first since 2006, had weighed on non-interest yielding gold, pulling more funds to the dollar.

The unemployment rate remained unchanged at 5.3%, in line with expectations. (As a reminder, growth in the self-employed category of workers is often taken with a grain of salt because it may include employees in the midst of a job transition who prefer to be counted as self-employed, rather than as unemployed.) Average hours worked also decreased by 0.4%.

The Canadian dollar slid lower against the greenback on Friday as domestic employment data underlined the diverging monetary policies of the two countries. Given that, the latest month may just be the normalization of some monthly data noise in both categories.

Against the euro, sterling edged up 0.1 percent to 70.73 pence, not far from a 7 1/2-year high of 69.51 pence hit last month.

Short-covering by bearish traders in US gold futures and options “should eventually lead to gold back above $1100”, says Swiss bank and London bullion market maker UBS today.

But Lockhart said on Monday he agreed with Yellen and many others that the rate hike path should be gradual once an initial increase is approved.

That said, over the weekend China informed its exports in July were down by 8.3 percent year-over-year (y/y) while its imports were down by 8.1 percent y/y.

Conflicting statements from members of the Fed’s rate-setting committee earlier in the week, plus a lower than expected reading on manufacturing-sector activity from the Institute for Supply Management, confounded investors’ expectations for the timing of what would be the first increase to the Fed-funds rate, the Fed’s benchmark interest rate, since 2006.

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The euro zone is to publish preliminary data on second quarter economic growth as well as revised data on consumer inflation.