Gold for December delivery traded higher on Friday morning by 0.3% at $1,270.20 an ounce, up from $1,264 before the latest U.S. jobs data was released by the Labor Department at 8:30 a.m. EDT. Gold is being pushed in many different directions by economic cues such as a stronger U.S. dollar and the European Central Bank adopting a looser monetary policy.
Here are the major economic cues that have been weighing on gold:
U.S. Dollar Rally
The dollar reached a 13-month high against 10 major currencies on Thursday. Overall it has gained 5% against the euro since the start of 2014, and it has gained traction against the typically strong British pound and Japanese yen as well. A stronger dollar lessens gold’s appeal as a hedge against inflation. A stronger dollar also makes gold, which is traded in U.S. dollars, more expensive for those using foreign currencies, which lowers demand overseas and brings prices down. However, there are still consumers who turn to gold during times of “bargain buying”, when the buy-in price for gold is low.
European Central Bank Activity
The European Central Bank (ECB) made an unexpected move on Thursday by cutting interest rates to a record low – from 0.15% to a near-zero level of 0.05%. ECB President Mario Draghi also announced central bank will begin purchasing asset-backed securities (similar to the Fed’s quantitative easing program), with more details to come on Oct. 2. The program is rumored to involve as much as 1 trillion euros. The European Union is currently experiencing a decline in economic growth and a dangerously low inflation level of 0.3%. For perspective, the U.S. Federal Reserve considers 2% to be a healthy level of inflation. The euro has weakened as a result, which has contributed to the rise in dollar strength.
U.S. Jobs Data
The Labor Department reported on Friday that employers added 142,000 jobs last month, the slowest rate since last December. The majority of economists were expecting a number above 200,000 based on July and August’s positive data on durable goods orders, construction activity, and manufacturing. The unemployment rate fell by 0.1%, but the drop was due to job-seekers giving up their search and leaving the workforce. These disappointing numbers proved to be helpful for gold on Friday morning. Weak employment numbers are seen as a sign of a weak overall economy, which cues safe-haven buying of gold.
While gold may still be trading below its former resistance level of $1,300, it’s important to remember that gold is not a product investors turn to in attempt to get rich. Considering its day-to-day volatility, gold functions best as an asset you purchase and then leave alone for several years, knowing that it will always have intrinsic value no matter what is happening in the world. Stocks and paper currencies can crash or go out of business due to a variety of circumstances that are out of your control. Gold does not face such risks and allows you to sleep at night. If you’d like to start protecting your assets with gold, call American Bullion at 1-800-326-9598 to speak with a precious metals specialist about buying gold for cash delivery or even purchasing it using your retirement account.