Here it is in a nut shell “I don’t see anything that will pound gold ahead of the Fed meeting,” he said.
Grady and several others noted how open interest in gold futures and options has risen sharply in the past two weeks or so, based on the idea of more QE from the Fed. Open interest is the number of outstanding positions in a market. Growth in open interest, accompanied by rising prices, suggests new buying has entered the market. He said there was strong buying on Friday, particularly in options where traders were putting on bullish trades.
But before everyone piles into the market, Grady said, consider this: “If we don’t get QE at the meeting, if they (The Fed) do nothing, it’s going to be very scary in gold, especially after a $100 rally.”
Not everyone is expecting the Fed to move so soon on QE, either. Analysts at Nomura said even with the weak jobs data, it’s not enough to warrant a move next week.
“Economic activity has not been sufficiently strong to produce necessary job gains for the Fed to meet its employment mandate. Nor is job growth weak enough to suggest that the economy is falling off a cliff. Today's report was not sufficiently weak to change our expectations that the Fed will extend the forward guidance about the likely path of the federal funds rate but will not introduce QE3 at the upcoming September meeting,” they said.
Edward Meir, commodities consultant at INTL FCStone, said the Fed has a lot of mixed signals to sort out. The Friday’s jobs data was lackluster, but earlier this week, jobless claims fell to a four-month low, the ADP data was strong and the August ISM services reading also rose more than forecast, The last three indicators “may make the Fed’s upcoming decision somewhat trickier in that the argument for further easing may not seem as persuasive as it once was,” Meir said.