Gold rose from a one-week low of $1,921.97 an ounce to near $1,930 in early Asian trading on Friday. As the three major U.S. stock indexes tumbled, traders scrambled to cover losses by selling gold and other assets. While U.S. economic data has been mixed, traders are looking more forward to today’s non-farm payrolls report. The U.S. government is facing a shutdown at the end of the month, as well as retaliation from China. The vaccine news raised political concerns, with the White House insisting there was no political pressure on the agencies.
Political risk in the US is escalating, with enemies on both sides
The Speaker of the US House of Representatives Nancy Pelosi and The Treasury Secretary Steven Mnuchin have informally agreed on a stopgap funding bill to avoid a government shutdown at the end of this month. The informal agreement would avoid a government shutdown beyond Sept. 30 and would prevent the issue from becoming entangled in ongoing coronavirus relief negotiations. The current outbreak negotiations have been stalled for weeks. Under the agreement reached between Democrats and the Trump administration, the proposal to fund the government at current levels could avoid a shutdown before the November elections and possibly before the end of the year. “House Democrats support a clear continuing resolution,” Pelosi spokesman Drew Hammill told ABC News. Even so, as Ms Pelosi pointed out the day before, there are still “deep divisions” between opposition Democrats and the ruling Republicans over a new fiscal stimulus bill.
Relations between China and America have not improved. The United States imposed sanctions on several companies on Thursday, accusing them of facilitating the transportation and sale of Iranian petrochemical products, the Treasury Department said in a recent statement. The Treasury Department said it had imposed sanctions on six companies based in Iran, the United Arab Emirates and China. The companies support Triliance Petrochemical Co. Ltd., which is blacklisted in the U.S., the Ministry said. In a statement, the State Department said it also imposed sanctions on five entities and three individuals involved in transactions related to Iran’s oil and petrochemical industry.
In response, China is planning a series of new government policies to develop its domestic semiconductor industry and to deal with restrictions imposed by the Trump administration, giving it the same priority as efforts to build atomic capacity. The news sent the Philadelphia Semiconductor Index of the US down 5.7 per cent on Thursday, its biggest one-day drop since mid-June, and knocked nearly $100bn off its value.
In addition, China may reduce its bond holdings by the US and remove pressure from the US by becoming the world’s second largest holder of US bonds, the Global Times reported. The move is in response to the latest US sanctions against Chinese diplomats. Experts say China is likely to gradually reduce its holdings of US Treasuries to about $800bn, from the current $1tn, as the ballooning US federal deficit increases the risk of default and the Trump administration continues to lash out at it.
News of the vaccine’s success is rife with political controversy
Albert Bourla, Pfizer’s chief executive, said on Thursday that 23,000 volunteers had taken part in the third phase of the trial, which began in July, and that results would be announced as early as October. America’s Centres for Disease Control and Prevention (CDC) has asked states to prepare to distribute the vaccine as early as November. The US Food and Drug Administration (FDA) said it could quickly approve and use the vaccine through emergency authorization before the end of phase III clinical trials. That has raised concerns among public health experts that Mr. Trump is pressing regulators to approve vaccines before they have enough data to review them.
However, Pfizer said it would not submit an application for approval if the results did not prove that the vaccine was safe and effective. White House spokeswoman Kayleigh McEnany also said the FDA is not under political pressure.
Mixed US data, waiting for non-farm payrolls
Chicago Fed President Charles Evans on Thursday backed a pledge to keep interest rates near zero until inflation hits 2.5 percent, well above the current low level and just above the U.S. central bank’s 2 percent inflation target. He called on Congress for more financial aid and hinted at further easing of U.S. monetary policy,
In the U.S., the Labor Department said Thursday that new job losses fell 130,000 in the last week of August to a seasonally adjusted 881,000, below market expectations of 950,000. However, the trade deficit rose 18.9 per cent to $63.6bn as imports rebounded sharply, according to government figures, exceeding economists’ expectations for a deficit of $58bn in July and the highest in 12 years. U.S. jobless claims are “good, but the trade balance Numbers are really bad,” said Naeem Aslam, chief market economist at AvaTrade in Toronto. Mr Aslam said gold was still trading above $1,900 an ounce, “which puts gold on track to break through $2,000.” “The biggest risk event for gold” is Friday’s US non-farm payrolls data, and “only strong data can break” the gold rally.
In the United States, the service sector expanded at a slower pace in August as order growth slowed, indicating a more modest recovery from the outbreak. The Institute for Supply Management’s index of the services sector fell 1.2 points to 56.9, in line with the median forecast of economists surveyed by Bloomberg. It was the first decline in four months. A reading above 50 indicates economic growth.
The NON-farm payrolls and unemployment rate report will be released at 20:30 this evening. The nonfarm payrolls report is expected to show 1.4 million new jobs. Analysts expect the unemployment rate to fall from 10.2 percent in July to 9.8 percent, the lowest level since April.