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On Monday, the Institute for Supply Management reported that domestic manufacturing expanded in November at the fastest pace in more than two years, while production levels and new orders rose by about three points a piece. The data convinced the investing community that we looking ahead to a more robust economic recovery, as well as a Fed taper sooner than expected. Gold prices took a major dive as a result, dropping by over 2.5% by the time the markets closed.
On Tuesday, gold hit a fresh five-month low, but then took a turn for the better as bargain hunters swooped in to take advantage of the price dip. Gold managed to find footing by the end of the day, holding steady in part because investors exercised caution ahead of major reports due Friday.
On Wednesday, gold surprised investors by posting its biggest one-day gain in nearly two months, in spite of a strong Beige Book. In this latest installment, the Federal Reserve described the economy as growing at a “modest to moderate” pace over the last six weeks, noting a pickup in the housing, automobile, and technology sectors. Gold climbed by over two percent by the close of trading, primarily driven by bargain hunting and short covering.
On Thursday, the bears were back on board, as markets reeled in reaction to stronger than expected GDP numbers, with stocks falling for a fifth day in a row and gold prices giving back all of Wednesday’s gains.
The Commerce Department adjusted up its initial reading of 3Q GDP by nearly a full percentage point, to a final reading of 3.6%, which is the fastest rate of growth in well over a year.
While markets reacted violently to this strong number, investors responded without fully analyzing the GDP makeup. More than half of the increase in growth came from a huge jump in stockpiled inventories. Excluding those, the growth rate came in at under 2% because consumer spending was at its weakest level in four years. Thus, while the 3.6% number at face value may lead investors to think that the Fed will have justification to talk taper at its impending December meeting, analysts argue the underlying fundamentals paint a far weaker picture of the state of the domestic economic recovery.
Meanwhile, from the Eurozone, Eurostat revealed that producer prices fell in the month of October at the fastest rate in four years. The low inflation data coupled with record high unemployment levels in the region meant that there were no surprises at Thursday meeting, after which Mario Draghi announced that the central bank would maintain the status quo on its record low benchmark interest rates, and that ultra accommodative monetary policies would remain in place for an extended period of time.
Friday brings the release of the highly anticipated November jobs report. While analysts are predicting the addition of 185,000 jobs to the workforce, two early reports give indications that the number might come in much higher. For the last week in November, jobless claims fell to their lowest level in two months, at under 300,000 claims, and Wednesday’s ADP report of the private jobs sector showed the strongest growth in more than a year, posting 215,000 jobs for the month. Analysts predict that unless the jobs report surprises everyone by coming in under 175,000, this week‚ precious metals could see further consolidation.
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