Gold has stabilized near unchanged on the day. There was some modest volatility around the jobs report, but intraday upticks have proven unsustainable thus far.
The rebound in nonfarm payrolls to +211k — which was above expectations of +188k — and the downtick in the unemployment rate to 4.4% reinforces the existing tack of Fed policy; incremental, data dependent rate hikes. Apparently however, some data can be dismissed as transitory (see Q1 GDP).
The euro continues to rally as risk of a surprise upset in Sunday’s run-off election is being broadly dismissed. Markets seem confident that the Frexit risk is nonexistent. Polls show centrist, europhile Emmanuel Macron with a commanding 20-point lead.
Euro gains have pushed the dollar index to a 6-month low of 98.59, which may serve to limit the downside for the metals. It also may provide additional cover for the Fed’s tightening campaign.
The commodities rout continued this week, amid concerns that China’s economy is slowing. Adding to that pressure is the ongoing fall in oil prices. Crude has retraced all of the gains associated with the OPEC production cuts and then some. Crude traded briefly below $44 today, before rebounding into the range.
Investors’ dumping of commodity funds and ETFs has contributed to the sell-off in the precious metals. Pretty much every one of those products has both a gold and silver components. You can’t shed your exposure to iron ore, copper and oil without also ditching the gold and silver exposure, although in reality the attendant risks might warrant hanging on to the latter.
As recessionary risks rise, we have in the past seen investors pile back into the precious metals as a hedge against those growth risks and the expected reaction from global central banks. The recent retreat in gold and silver just puts that hedge on sale.