RBA v US Fed - Loosen or Tighten?

Gold and silver saw a nice rally Friday night as the monthly US NFP employment numbers showed the first negative print in 7 years, losing 33,000 jobs.

This was offset by a strong BLS Household Survey print of 906,000, and the market reacted in an understandably confused manner.  Whilst gold rallied the shares didn’t really know what to do as analysts focused on the positive news and upped their odds of a December rate hike by the Fed.  As we’ve discussed before this potentially works for gold both ways as a December rate hike could be ‘that hike’ into weakness that causes the crash.

At home it was a little clearer as the awful retail sales print last week (the second, seeing both July and August weak) prompted RBA member Prof Ian Harper hinted at a possible rate DROP here if the trend continues.  From The Australian:

“ “The thing that is causing an issue for us (the RBA board) is slow growth in wages, which is feeding into slow growth in household income,” Professor Harper said in an interview with The Wall Street Journal. “If you start to lose that momentum, that might be the basis of some sort of policy action,” he said.

The Australian dollar dropped after Professor Harper’s comments hit the wires, from US77.97c to US77.75c.

Retail sales fell 0.6 per cent in August, the biggest drop since 2013. It followed a 0.2 per cent fall in July, shifting momentum in the opposite direction to economists’ expectations, and fanning fears that record household debt and stagnant wages growth will sideline consumers and slow the economy.

Professor Harper said the latest retail sales outcome was disappointing, but not alarming.

“It is yet another indication that we are not out of the woods,” he added.

Incomes in Australia are growing at their slowest pace in a quarter of century, and the International Monetary Fund recently highlighted Australia’s high levels of household debt in a global report on financial stability.

Household debt is reaching its upper limits, while there are also limitations on how much people can rein in saving to sustain their spending, he added.”

Gold owners should take note as a reduction in interest rates would ordinarily see a drop in the Aussie dollar and hence a rise in the Aussie gold spot price.  It also reaffirms what most are ‘feeling’ and that is things aren’t as ‘awesome’ as markets would want you to believe and that an allocation to an uncorrelated or safe haven asset is prudent…

It highlights too the dislocation between the two central banks of the US Fed looking to tighten and the RBA looking at easing.