International spot gold was at $1,713.00 an ounce in early Asian trading on Friday. Gold surged past $1,700, $1,710 and $1,720 an ounce in the previous session, peaking at $1,721.90 an ounce. It has since retreated from its highs and is now retracting, down 0.11% on the day.
Both gold and the dollar took a big dive in the last session, while the dollar index.dxy retreated sharply after soaring to 100.41 and is now back in the 99.80 zone.
Gold opened at $1684.58 an ounce in early trading on Thursday, rising as high as $1721.80 an ounce and dipping as low as $1681.70 to close at $1715.16, up $30.66 or 1.82%.
Meanwhile, COMEX gold futures for June delivery ended up $37.30, or 2.2 percent, at $1,725.80 an ounce.
Gold rose nearly 2 percent on Thursday as a series of weak economic data, including U.S. job losses, heightened fears of a global recession triggered by a novel coronavirus outbreak, while investors turned their attention to Friday’s U.S. nonfarm payrolls data for further clues.
Nearly 3.2 million people applied for unemployment benefits last week because of the coronavirus. Initial claims in the week ended May 2 were less than half their peak of 6.9 million at the end of march. Still, the number of new claims for jobless benefits rose to more than 33 million in seven weeks.
Jim Wyckoff, senior economist at Kitco.com, said the weekly U.S. jobless claims report “reminds traders and investors that the U.S. and other major world economies are severely damaged.”
Michael Matousek, chief trader at U.S. Global Investors in New York, said data showing high unemployment was still telling Investors they might need to hedge.
New claims for state unemployment benefits reached 3.169 million last week, bringing the total for the past seven weeks to 33.5 million, labor department data showed on Thursday. That was slightly higher than the 3.05 million expected by economists polled by dow Jones, but down from a revised 3.846 million last week.
While the employment situation remains grim, it is the lowest since the second week of march, shortly after the world health organization declared a coronavirus pandemic.
The four-week moving average fell to 4.173,500, down 861,500 from the previous week’s average, a further indication that the worst may be over for the labor market. The data, which are not seasonally adjusted, showed 2.85 million people applied for unemployment benefits last week, down 646,600 or 18.5 per cent from the previous week. Some economists argue that the unadjusted figures are more in line with the current unprecedented situation because they are less affected by seasonal factors.
At the current pace, weekly claims should fall below 1 million by mid-june, said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “We are very hopeful that June will see a rebound in the economy as states reopen,” Shepherdson said.
Unadjusted claims totaled 2.849 million in the week ended Saturday, down 64,613 (or 18.5 percent) from the previous week. However, the number of people still filing claims or at least filing claims in the past two weeks rose 4.6 million to 22.6 million.
The worst non-farm ever! Watch out for a big market shock tonight
On Friday (May 8) at 20:30 Beijing time, the United States will release the change in non-farm payrolls and the April unemployment rate.
Economists surveyed by dow Jones expect nonfarm payrolls to plunge 21.5 million in April and the unemployment rate to soar to 16%, making it easily the worst month in U.S. history.
Another sign on Thursday was that the jobs picture remained grim. The challenger report said the number of job cuts announced in April rose to 671,129, the highest level since the survey began in January 1993. U.S. challenger companies cut 170 percent more jobs in April than the previous record set in 2002.
Analysts say the April non-farm payrolls report will be the worst ever. Economists think more than 21 million jobs were lost in April, which would push the unemployment rate to 16 percent. The last time unemployment hit double digits was in 1983, after the 1980s recession.
Anticipation is one thing, price action is another, wrote Kathy Lien, managing director of BK asset management. From the currency market’s perspective, the persistent dollar/yen decline over the past few weeks tells us that currency traders are ready to report weakness, and while the shock job losses could still push the dollar/yen lower, selling could be limited if the data does not deviate from expectations.
Kathy Lien said investors need to focus on the change in average hourly earnings because it could be the biggest surprise. Economists expect wage growth to stabilise at 0.4%, rising from 3.1% to 3.3% year on year. This is hard to understand because there are numerous reports that companies are cutting wages at the same time they are paying them. If wage growth turns negative and the rest of the jobs report meets expectations, that could be enough to push stocks and currencies sharply lower.
Kathy Lien said if Friday’s labor market data is in line with expectations, which means stronger wage growth, a 16 percent unemployment rate, 21 million fewer jobs lost, and no revisions to the march data, then the market could rise. The data could also be so weak that it could lead to a sharp sell-off, triggering a strong subsequent rally as investors assume this is the worst-case scenario. In short, the best way to trade nonfarm reports is to either sell before the report, close before the report, or wait for the data to stabilize and see how the day actually goes.
Golden aftermarket outlook
“Gold may struggle in the short term, but macro drivers are expected to propel gold to record highs later this year,” Edward Moya, senior market analyst at broker OANDA, said in a note. Economic activity is expected to rebound much more slowly this quarter, which will continue to support expectations of strengthened global monetary and fiscal stimulus.”
Pepperstone said gold remains bullish because it can hedge against fiscal deficits, devaluation of fiat currencies, a global pool of negative yielding bonds and possible inflation.
“In the short term, gold may come under some further pressure,” said Stephen Innes, chief market strategist at financial services firm AxiCorp. But with interest rates so low, there is likely to be a limit to how much gold can fall, even if it is unblocked.”
Julius Baer analyst Carsten Menke said gold had been hovering around $1,700 for some time. He said there were “some arguments” as some expected the economy to deteriorate again and enter the market, while others were considering not adding to their gold portfolios as the blockade was lifted and the economy recovered.
‘I like gold and silver as a hedge against inflation,’ said David Rosenberg, chief economic strategist at Rosenberg Research and Associates. It is only a matter of time before gold hits record highs. Gold is bullish as inflation keeps real interest rates in negative territory. Real interest rates will become increasingly negative and there is no better correlation between gold and real interest rates.
Nicholas Colas, co-founder of DataTrek Research, points out that the gold/silver ratio has risen sharply, with peaks often occurring during periods of economic or geopolitical instability. Demand for gold has been driven more by investors, who see the metal as a flight from the safety of trading in times of market turmoil and fears of inflation.
Rick Rule, Sprott’s U.S. President, expects a bull market in commodities in the next three to five years. The next five years will be very good for commodity investors, with precious metals enjoying a two – or three-year bull market and the rest of the commodity market on fire as the bull market draws to a close.