Gold futures are trading higher late in the session on Thursday after a record surge in U.S. jobless claims weakened the U.S. Dollar and drove up the odds of further government stimulus to combat the devastating effects of the coronavirus pandemic on the U.S. economy.
Furthermore, the price action suggests gold investors may also be betting on additional help from the major central banks including further rate cuts and more aggressive Quantitative Easing (QE) buying.
At 19:14 GMT, June Comex gold is trading $1656.00 +21.70.
“More countries are expected to release some sort of stimulus packages which is a big event for gold. In addition to it, unemployment claims jumped. That tells investors that QE is going to have more longevity,” said Michael Matousek, head trader at U.S. Global Investors.
Americans File Record Unemployment Claims
Gold spiked more than 1% higher earlier today after government data showed a record high of more than 3 million Americans filed claims for unemployment benefits last week as strict measures to contain the pandemic curtailed economic activity.
Americans displaced by the coronavirus crisis filed unemployment claims in record numbers last week, with the Labor Department reporting Thursday a surge to 3.28 million. Consensus estimates from economists surveyed by Dow Jones showed an expectation for 1.5 million new claims, although some individual forecasts on Wall Street had been anticipating a much higher number.
The number shatters the Great Recession peak of 665,000 in March 2009 and the all-time mark of 695,000 in October 1982.
“It’s an indication that things are slowing down dramatically. The worse data you can get right now, the (gold) market should respond favorably, because that provides more ammunition for the Fed to be keep on stimulating,” Matousek added.
U.S. exchange operator CME Group on Tuesday announced a new gold futures contract to combat price volatility caused by the shutdown of gold supply routes, but traders and bankers said it would not immediately calm markets.
The jobless claims data should help underpin gold prices over the near-term. Spiking the market higher is exciting for traders, but it’s not long-term constructive. A strong rally is built on a series of higher-highs and higher-lows, not periodic surges.