Stock Market Watch

Gold Prices Rebound as U.S. Job Market Deteriorates

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Gold prices rallied on Thursday—a biggest weekly gain in previous six weeks as weak dollar mainly due to downbeat U.S. weekly jobless data, pushed up the metal prices.

On Thursday, the U.S. labor department reported that first time weekly unemployment claims have reached to highest level since January during the last week. The data has raised the concerns that job market was stalling, challenging the strength of the economic recovery.


Last week, the U.S. labor department had reported that only 120,000 non farms jobs were created against the estimated 203,000.

While Spot gold edged up $15.76 to settle $1,673.21 an ounce, which will be a weekly gain of 2.0 percent, U.S. gold futures climbed up $14.60 to close at $1,674.90.

Euro-zones woes and gold’s upsurge

After Greece, it’s Spain struggling to find answers to its economic woes as country’s bond yield jumped by nearly 6%, a level which is perceived as unsustainable by Madrid to service its debt. The current rise in Spanish bond yields comes after head of the Spain’s central bank warned that country’s commercial banks will require more capital, should the economy deteriorates any further.

Reacting to latest developments, the equity market in Spain plunged to three month low. In the meantime, holdings of gold in exchange-traded funds, often perceived as a measure of longer-term investment appetite for bullion, held near record highs about 70.3 million ounces.

Gold in the recent past is tracking dollar rather than acting as a safe haven instrument.

For instance, gold’s correlation with euro has strengthened further, since the start of the year. This means that bullion’s sensitivity to movements in the euro is far higher than it was a month ago. This is the reason why gold prices increased as the euro showed some modest strength, after concerns over Spain’s bond auction and debt problem was eased somewhat following ECB’s board member’s Benoit Coeure’s comment that the central bank might go ahead with its bond buying program.

On the other hand, gold’s correlation with the dollar has fallen to its most negative since the start of the year, around -65 percent- which means that gold is more likely to move inversely to the greenback than it was a month ago, when this correlation was at -40 percent.

Commenting on latest upsurge in gold prices,  Andrey Kryuchenkov, Capital analyst at VTB said to CNBC, “It’s good that gold has bounced back up. I don’t expected sustained losses, but neither do I expect sustained gains, because tomorrow you have Chinese GDP data but you also have U.S. inflation and that is going to be closely watched”.

According to Peter Tse, director at ScotiaMocatta in Hong Kong, “The comment (ECB) has stabilized the stock market and euro, but the prospect in the euro zone still looks grim with yields in Spain and Italy trading at relatively high levels”.

On the U.S. economic front, market participants are expecting the Fed to ease its monetary policy as U.S. job market continues to deteriorate. On Thursday, couple of officials from the Federal Reserve hinted support for an accommodative monetary policy, saying the weak U.S. economic recovery still merited more interventions from the central bank.

While Federal Reserve Vice Chairman Janet Yellen commented late Wednesday that “further easing actions could be warranted” if the recovery stalls, Federal Reserve Bank of New York President William Dudley echoed Mr. Yellen feeling by saying that it was too soon to say the U.S. economy was out of the woods.

Gold prices can benefit from the central bank’s easy-money policies, as investors seek safer instruments that can shelter them from the potential weakness in the currencies.

In some other precious metal markets, silver edged up 3.2% to close at $32.525 a troy ounce. Spot palladium also climbed up 1.91 percent to $644.55 an ounce, after losing 0.6 percent in the previous session.

 

 

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edliston
Post Written By: Ed Liston

Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.


Ed Liston

Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing.

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