Gold News

Dollar Down, Gold Price Rallies from NFP Slump on Weak US Services Data

GOLD PRICES jumped $20 per ounce Monday afternoon in London as the Dollar snapped its recent rise on the currency market following much weaker-than-expected US services sector data for May, write Atsuko Whitehouse and Adrian Ash at BullionVault.
After last week's better-than-forecast US non-farm payrolls data and the US debt ceiling deal, today's ISM survey of non-manufacturing purchasing managers said growth in new orders slowed hard last month while employment in the sector fell for the 1st time since December.
With officials from the Federal Reserve now in the regular comment black-out ahead of the US central bank's mid-June interest rate decision, wholesale gold bullion prices spiked into the London PM benchmark auction, fixing above $1950 and then rising to $1961 in spot-market trade.
The Dollar index – a measure of the US currency's value versus its major peers – meanwhile reversed today's earlier 0.4% gain after recording the biggest daily gain in 2 months on Friday's strong NFP and Jolts job openings figures.
Over the last month, the daily correlation between the DXY and gold priced in the Dollar reached -0.90, the strongest negative relationship since the end of February, just before the mini-crisis in US regional banking took down Silicon Valley Bank and coincided with the forced takeover by Swiss giant UBS of competitor bank Credit Suisse.
That rolling 1-month correlation would read +1.00 if gold and the Dollar moved together in lockstep each day, or -1.00 if they moved exactly opposite. It has typically read -0.58 over the last 10 years.
Chart of US Dollar Index vs. gold priced in Dollars. Source: BullionVault
"The prevailing view in the market is that [Friday's] jobs report was generally not strong enough to change the thinking on the June rate hike," said Koichiro Kamei, a financial and precious-metals analyst in his latest report for Japan Gold Market Association.
Interest-rate traders now put the probability of a 25 basis point rise at the Fed's meeting on 13-14 June at worse than 1-in-5, down from 2-in-3 just a week ago.
"However, the possibility of a resumption of interest rate hikes at the following July meeting is undeniable, depending on future indicators," Kamei continues, "and the change in June forecasts did not stop the selling pressure in gold market towards the end of last week."
The UK gold price in Pounds per ounce today reversed Friday's late drop to 11-week lows, adding 0.8% to £1576.
Action in the Euro gold price remained more muted, taking it back to the middle of the last fortnight's range at €1827 per ounce.
Gold prices on the Shanghai Gold Exchange – entry point for bullion into mainland China, the precious metal's No.1 consumer market – had earlier fallen over 1% on Monday to ¥446 per gram but continued to show a premium to London quotes, offering an incentive for new imports of $7 per ounce despite the Yuan skidding to 6-month lows against the Dollar overnight.
The Turkish Lira meanwhile dropped more than 1% versus the Dollar on  Monday, continuing the slide re-commenced since President Tayyip Erdogan's re-election and sending the gold price in TRY to a new all-time high for the metal's No.5 consumer nation.
This latest fall in the Lira came despite Erdogan appointing Mehmet Simsek as Turkey's finance minister after he was seen winning the confidence of financial markets during previous stints in government between 2009 and 2018.
Crude oil meantime retreated from an earlier 2-week high of $78 per barrel of benchmark Brent, reached after global 'swing' producer Saudi Arabia said it will cut output by 1 million barrels per day in a bid to boost prices from this spring's 18-month lows.
Silver also rallied with gold prices on today's weak ISM data, adding 30 cents to $23.68 per ounce before cutting that pop in half to trade unchanged from Friday evening's close.

Atsuko Whitehouse is the Head of the Japanese Market at BullionVault and the Editor of Japanese GoldNews.

See all articles by Atsuko Whitehouse here.

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