Gold Loses Sheen on Strong U.S. Jobs Data

Upbeat employment data drove global investors to higher-yielding assets

U.S. employment data released by the U.S. Department of Labor said on Friday, August 5th, 2016, shows that employment rose more than expected for the second month in a row in July 2016. An uptick was seen in July wages as well, pointing to faster economic growth and raising expectations of a Federal Reserve interest rate increase later in 2016, as reported by Reuters on August 6th, 2016.

As a result, gold lost its appeal and hovered near one-week lows on Monday, August 8th, 2016, after falling about 2% in the previous session, as the stronger-than-expected U.S. jobs report drove investors to higher-yielding assets in the near term. Concerns over negative global economic sentiment also added to the fall in gold prices. The upbeat employment data fuelled by the U.S. non-farm payrolls, U.S. stocks, European shares, and the dollar, rose on August 8th, 2016.

Spot gold was nearly flat at $1,335.40 an ounce after touching its lowest since July 29th, 2016, at 1,331.36. U.S. gold edged down 0.2% to $1,341.50 an ounce on August 8th, 2016. With the upcoming U.S. presidential elections in November 2016, there is an element of uncertainty that added to gold losing its sheen as the preferred investment haven. Earlier in 2016, gold prices jumped 28% on speculations of an interest rate hike. However, economists still believe that the macro environment is still favorable to gold and that the recent dip in gold prices could be temporary blip, since the Fed has said that any moves to raise interest rates may be gradual.G1

Market watchers predict that spot gold is expected to hold steady at $1,339 per ounce, and could inch up towards $1,346 once the payrolls data loses steam. Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar, in which it is priced. Speculators added net longs in gold futures for the first time in four weeks in the week to August 2nd, 2016, although they remained below last month’s highest level in more than two years. Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, expanded by 7.1 tons to 980.3 tons on Friday, August 5th, 2016, its biggest one-day inflow since late June.

The U.S. jobs data for July 2016 had a domino effect on other precious metals as well. Among other precious metals, spot silver fell to an almost two-week low and was down 0.23% at $19.76 an ounce at the close of trading on August 8th, 2016. It fell 3% on Friday, August 5th, 2016. Hedge funds and investors reduced their net long positions in COMEX silver contracts for the first time in two months in the week to August 2nd, 2016.G2

Spot platinum fell 0.05% to $1,154.80, while palladium fell 0.48% to $690.00 at the close of trading on August 8th, 2016.G3G4

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