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It Seems Last Thursday’s $37 Decline in Gold Futures Was a One and Done

It was a knee-jerk reaction in response to the ADP jobs report, which came in well above expectations by economists polled by the Wall Street Journal and Dow Jones and Reuters.

Economists surveyed by the Wall Street Journal had forecasted that last week’s ADP report would indicate an increase of 680,000 new private-sector jobs were added in the month of May. The actual number came closer to a million, with the report showing that 978,000 Americans were added to the workforce in May.

Although many investors and traders believe that these high numbers could reflect the U.S. Labor Department’s jobs report that came out last Friday. However, Reuters spoke about the shortcomings of using the ADP report as a bellwether test of the upcoming Labor Department’s report.

“The ADP report overestimated private payroll gains in April’s employment report, after understating growth throughout much of the jobs recovery, which started in May 2020, leaving economists cautious about reading too much into the report.”

Reuter’s assumption was on the money as Friday’s jobs report came in over forecasts by economists polled by Reuters and the Dow Jones and Wall Street Journal, which predicted an increase of 671,000 new jobs added in May. The actual numbers were that 559,000 new jobs were added last month. This data shifted market sentiment back in the bullish camp, taking gold about $20 higher on Friday. Considering that April’s jobs report showed a tepid increase of just 266,000, the jobs report for May was a massive increase over April’s numbers but less than economists had anticipated.

The big news is that we had follow-through buying that resulted in gold futures closing above $1900 per ounce in trading today. As of 6 PM, EST gold futures are trading at $1902.10 after factoring in today’s increase of $10.10 (+0.53%). Today’s solid gain in gold can be attributed to renewed inflationary concerns, dollar weakness, lower Treasury yields, and a shift in market sentiment back to a bullish demeanor. The dollar index lost almost 2/10 of a percent today and is now back below 90 and fixed at 89.97. The 10-year Treasury Note yield is currently fixed at 1.573%.

june 7 gold

Gold recovered from Thursday’s dramatic selloff, and breaking back above $1900 on a closing basis is significant. But as we spoke about on Friday, inflationary concerns are a double-edged sword for gold investors and traders. It could prompt the Fed to begin to taper its quantitative easing policy of monthly purchases totaling 120 billion. However, it is my belief that is contrary to many analysts that believe that the Fed will begin to reduce its bond purchases sooner than later, as early as the fourth quarter of this year. While it’s most likely that interest rates will remain near zero throughout this year and 2022, once the Fed does begin to taper its asset purchases which are now well above 7 trillion, it will signal a slow and methodical change of their current monetary policy.

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Wishing you, as always, good trading and good health,

Gary S. Wagner