Gold price on a tear after dismal jobs data
Disappointing jobs and manufacturing data out of the US coupled with a sagging dollar sent the gold price on a tear Wednesday with the metal surging past the psychologically important $1,200 an ounce level.
Gold for delivery in June – the most active futures contract – leaped $24.44 or 2% from yesterday's closing price hitting $1,207.65 in heavy lunchtime trade in New York, erasing all its losses earlier this week.
Gold was boosted by news that private-sector employment only increased by 189,000 positions in March, a wide miss from expectations of 225,000 net additions.
Further evidence of a softer US economy came from manufacturing data with the closely followed ISM survey falling for the fifth straight month in a row.
The reading of 51.5% indicates that the sector is still expanding although at a much slower rate. Crucially the employment sub-index is now the weakest since May 2013 and close to contraction.
Arguably the strongest sectors of the US economy over the last three years also suffered a hiccup on Thursday with General Motors and Ford declaring a slip in sales in March.
The news strengthens the hands of Federal Reserve doves – including chair Janet Yellen – who believe any rise in interest rates should happen later rather than sooner so that the labour market could recover fully.
The gold price and interest rates have a strong negative correlation. As the metal produces no income, the opportunity costs of holding gold rises in a high-yield environment.
Higher money market yields also boosts the dollar which usually move in the opposite direction of the gold price.
Analysts have consistently cited rising interest rates in the US as the strongest headwind for gold in 2015.
On Friday the official Bureau of Labor Statistics' estimate of non-farm payrolls is released which could give further direction to the gold price.
Given the Easter religious holiday it would be one of the thinnest trading days of the year exaggerating any move in the gold price.
Gold has rallied nearly 5% from its 2015 low of $1,148.20 an ounce hit mid-March but is still well below highs above $1,300 reached in January.