Gold has been a major beneficiary of a weak dollar and low US interest rates over the last three weeks and this looks likely to change in the short-term. The yield on the 10-year US benchmark is nearing 1%, up from 0.65% a week ago, dulling the appeal of the precious metal, while the US dollar basket may have found a temporary base around 96.50 after having fallen by four big figures since mid-May. Bullion has declined about 3% last week, on track for its biggest fall since the week ending March 13.
Gold prices dipped more than 2% on Friday as investors’ hopes of a rebound in the global economy got a boost from stronger-than-expected U.S. non-farm payrolls data, reducing demand for safe havens.
A record surge in US employment on Friday sent gold into a tail spin and back to lows seen at the beginning of May. Just over 2.5 million jobs were added in May compared to market expectations of 8 million lost jobs, the largest month of job creation since the data series began. Last month the US economy lost just over 20 million jobs. Today’s positive data boost added to an already upbeat market tone and helped push gold back into the early $1,680s, its lowest level since May 2.
The May payrolls report confounded economists who had predicted a job loss of 8 million in May as the coronavirus kept parts of the U.S. economy closed for a third straight month.
The report also jarred with separate data released a day earlier by the Labour Department, which said it received weekly unemployment claims for the first time from 1.9 million Americans, bringing to nearly 43 million the number receiving jobless insurance since the Covid-19 hit home in March. Gold prices jumped 1% on Thursday, reacting to the jobless claims numbers.
We had significantly stronger-than-expected U.S. payroll numbers – an increase of 2.5 million versus an expectation of a decline of 7.5 million – that 10-million swing has brought forward expectations of the economic recovery in the United States.
A kick-start to another rally in the gold price remains elusive. The market’s confidence that the most acute stage of the pandemic has passed in many countries has seen risk appetite improve. With investors now betting stimulus measures will bridge the gap to more normal growth
The central bank has injected massive stimulus and cut interest rates to near zero to cushion the blow from the coronavirus pandemic. The Federal Reserve, the U.S. Treasury and Congress have jointly approved and disbursed trillions of dollars in loans, grants and outright aid to businesses and individuals in recent months because of the Covid-19-triggered economic downturn.
But investors still remain bullish over the medium-term. They believe that Gold might not get much more support from the Fed, but geopolitical risks, second wave concerns, and an eventually weaker U.S. dollar should keep the longer-term bullish outlook intact The macro backdrop is challenging, despite market confidence in the trend towards normalised growth. The expansion of central banks’ balance sheets shows no sign of abating, while geopolitical tensions escalate.
The otherwise safe-haven known as gold is rallying right alongside an equities markets surprisingly chock-full of momentum even as protests sweep the U.S. and deaths from COVID-19 continue to climb.
Some analysts, however, remained optimistic that gold would regain some upward momentum in the near-term despite the risk rally in stocks.
The reason being uncertainty- geopolitical issues and trade tensions (in the U.S) still remain on the cards and for the longer term these factors will definitely influence gold prices positively and those who strongly believe this and are still favouring gold are expected to benefit in the long run.