Gold News

Gold Investing 'Strongly Inverse' to S&P500 But Both Rise as US Non-Farms Jobs Miss Forecasts

GOLD INVESTING prices recovered for a second session against a weakening US Dollar on Friday, again moving higher after new US economic data came in weaker than expected, cutting the odds that the Federal Reserve will raise interest rates this month.
 
Betting on a US Fed hike from 0.50% to 0.75% at the Fed's 21 September meeting fell from 1-in-4 to almost 1-in-5 after the Bureau of Labor Statistics estimated only a net 151,000 jobs were added to non-farm payrolls in the world's No.1 economy in August, sharply below Wall Street's 180,000 forecast.
 
Gold erased the last of this week's earlier 1.5% investing losses in Dollar terms as the US currency fell on the forex market, and also got back to last Friday's finish against the Euro, Swiss Franc, Canadian and Australian Dollars.
 
US stock markets gained – with European shares rising 1.7% from last Friday – as did government bond prices and commodities.
 
Crude oil bounced 2% but still headed for a weekly loss of 8%.
 
Silver bullion jumped ahead of gold investing prices following the US jobs data, regaining the last 2 weeks of losses at $19.25 per ounce.
Chart of US Dollar gold and silver prices, rebased to 100 = 5 June 2016
 
"Thursday's data led price recovery [looked] promising for gold," said the trading desk at Swiss refiners MKS Pamp overnight, with yesterday's larger than expected US jobless benefits claims figure providing a "catalyst" for gold's rebound from new 2-month lows.
 
"[But] the weak ISM [manufacturing] data was the key protagonist."
 
"US economic growth is weak yet the labour market is tight," writes French investment bank strategist Albert Edwards – a "juxtaposition [now] keeping the Fed in a quandary on whether to raise interest rates.
 
"Only the US consumer is keeping the economy out of recession...Business investment's contribution to GDP [is] now consistent with recession."
 
"Correlation over the last 60 sessions between Comex Gold contracts and the S&P500 stock index is minus 0.61," writes Yuichi Ikemizu, branch manager for ICBC Standard Bank's Tokyo office – "a very strong inverse correlation...the strongest of the past 10 years."
 
A perfectly positive correlation, with two prices moving together in lockstep, would read +1.0, while a reading of -1.0 would signal a perfectly inverse relationship.
 
"If we have both gold and stocks in a portfolio," says Ikemizu, "you will get better risk rewards than a portfolio with just stocks...Given this strong negative correlation between the two assets, there is a good reason to hold gold in a portfolio.
 
"That is why many investors are buying gold this year."

Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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