Gold dips from a 2-month top as the Chinese stock market stabilizes today after another panic selloff yesterday. Does it mean that the yellow metal is now traded on news about China?

On Thursday, amid the depreciation of the yuan, Chinese equities plunged more than 7 percent in the first half hour of trade, forcing the stock market exchange to suspend trading for the second time in a week. As the situation stabilized, gold gave up the gains.

However, this does not necessarily means that gold is not traded on U.S. economic news. Indeed, on Monday, when gold rose, the ISM index revealed a decline from 48.6 percent to 48.2 percent in December. It means that economic activity in the manufacturing sector gauged by this index contracted in December for the second consecutive month. On the same day, U.S. construction spending for November unexpectedly sank 0.4 percent. On Wednesday, orders for goods manufactured in U.S. factories declined 0.2 percent for November, while the December FOMC minutes were dovish.

And today, the December Nonfarm Payroll Report will be released, therefore gold may be under downward pressure, especially that the ADP data showed strong private-sector job growth. However, there are arguments that the price of gold will not react strongly to the Employment Report, since it is rather certain that the Fed will not hike before March, no matter how many jobs the U.S. economy will create. In general, the December FOMC minutes suggest that in 2016 inflation reports may be more important than labor market data for the gold market, since the Fed officials are happy with the labor market (so far), but see important uncertainty associated with low inflation.

The bottom line is that gold was traded this week both on news about China and the U.S. As the Chinese authorities calm the markets, the attention will focus on the American economy, even more so since the December Nonfarm Payroll Report is set to be released today.

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Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

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