A week in gold: Steady despite US jobs and forward selling
New York (July 5) A week in gold: Steady despite US jobs and forward selling.
Much better than expected monthly US job numbers slowed gold’s recent rally, but it was rising again towards the end of the week.
At one stage Wednesday, the spot price was threatening to rise decisively above US$1,330 but ADP’s private sector jobs number came in better than expected while Thursday’s non-farm data was good as could be according to some economists.
US unemployment is running at a near six–year low of 6.1% following the 288,000 jobs created in June.
The US economy has now added more than 200,000 jobs in each of the last five months and with employment one of the US Federal Reserve’s key criteria for setting policy, odds have shortened that US interest rates may be on the up much sooner than expected.
Gold’s strong recent rally had been sparked in part by Fed chair Janet Yellen’s assertion that rates would stay low for a considerable period of time.
The spot price dropped US$10 immediately after the non-farm data was released, ending a run of four days straight of gains, but had recovered by Friday.
Indeed, gold has been edging up steadily since Yellen’s interest rate promise, helped by the political developments in Iraq, Ukraine and more recently Israel.
Mixed economic data had also seemingly reinforced the view of the Fed that it needed to keep its stimulus policies in place until the recovery had been more firmly established.
Gold has been a major beneficiary of the loose policies adopted since the financial crash and it was partly fear of tighter money that sparked the metal’s 28% fall in 2013.
If gold prices do come under pressure that will bad news for the gold miners, at least according to Mark Bristow the outspoken head of Africa–focused miner Randgold Resources.
Talking to South African journalists last week, he said most of the gold industry was fundamentally bust at a gold price below US$1,300.
At this price, returns were too low for many miners, he said.
The eventual consequence would be mines closing and a reduction in gold supply, which would push prices higher with physical demand set to remain strong.
Pointing to the gold hedging in the nineties saw multiple extra ounces being supplied into the gold industry, Bristow said that when you over supply the gold market, the gold price goes down.
“As soon as we tightened it up in 2001, the gold price just shot up”.
There are signs that gold hedging by companies may be gathering momentum again, however.
Russian miner Polyus this week announced the largest hedging transaction in six years totalling 2.83moz, including 2.52moz of options.
Source: proactiveInvestors
