Gold News

Gold Price Rebounds on US Jobs Data as Rate Rises Hit Lenders, Bankruptcies, Housing

GOLD PRICES rose after mixed US jobs data on Friday, adding $10 for the week to the precious metal's US Dollar value and rallying 1.0% from yesterday's drop following a much stronger estimate for the strength of the US labor market.
Rising 0.5% today from last Friday's 16-week closing low of $1912 per Troy ounce, the gold price also gained 0.5% in Euro terms to €1760 after the Bureau of Labor Statistics said the world's largest economy added 209,000 non-farm payrolls last month – some 7% below consensus forecasts but holding the jobless rate at 3.6% and keeping average wage growth at 4.4% per year.
Yesterday's estimate from the private-sector ADP Payrolls service for June's net US jobs growth blew past analyst expectations, coming in twice as high as expected and spurring a $25 plunge in the gold price.
But government figures also said Thursday that US job openings had shrunk by almost half-a-million in May, back down towards March's 2-year low, while new claims for jobless benefits last week rebounded towards mid-June's 20-month highs.
"Until the US labor market cracks under Fed hikes," says a mid-year update and outlook from strategist Nicky Shiels at Swiss bullion refining and finance group MKS Pamp, "[any] weaker US data is not enough to drive conviction around a Fed pause and thus subsequently upside momentum in gold.
"It is likely to be a long summer [for bullion traders] as the market awaits fresh headlines [or] a new catalyst to materialize...[but] gold prices are then expected to print a new all-time-high in H2 2023 and pierce $2100 [thanks to] higher floors" from consumer and central-bank demand.
Chart of gold priced in US Dollar, 12 months to 7 July 2023. Source: BullionVault
This week's release of minutes from the Federal Reserve's June policy meeting showed some members voicing concerns over slowing economic growth, says a note from bullion-market specialist Rhona O'Connell at brokers StoneX.
But "the conclusion [of members as they voted to raise rates again in June] was that the labour market remained very tight.
Moreover, "Post debt ceiling, the likelihood of more Treasury issuance could put further upward pressure on money market rates," says O'Connell, "which is a fresh headwind for gold."
Washington now needs to borrow over $1 trillion in short-dated Treasury bills by the end of December according to analysis by US financial giant J.P.Morgan – expanding the total already owed to private-sector lenders by more than 25%. 
An auction of 2-year government Gilts in the UK this week found lenders wanting almost 5.6% annual yield, the highest such borrowing cost since 2007 – eve of the Northern Rock failure and then global financial crisis – for the world's 6th largest national economy.
With J.P.Morgan saying this week that the UK's Bank of England may have to raise overnight borrowing costs to 7% per annum, one mortgage broker says the UK housing market would "tank completely" in the face of such high rates.
UK house prices are now falling the fastest since 2011, peak of the global-financial crisis bull market in gold prices, said figures from the Halifax mortgage lender today.
The median price of new houses sold in the USA rallied in May, data from the Census Bureau said last week, but year-on-year fell 7.6%, close to the worst decline since the global financial crisis spurred by the US subprime housing crash.
The UK gold price in Pounds per ounce today added £3 from Thursday's London PM benchmarking auction at £1500 per Troy ounce – a new low for 2023 to date.
Market consensus on where the Federal Reserve will put its key US interest rate at the end of 2023 has risen since yesterday's ADP data, according to the CME derivatives exchange's FedWatch tool, back up to last Thursday's 16-week high of 5.46%.
That day saw the Dollar gold price dip through $1900, also its most extreme level since the start of this spring's mini-crisis in US regional banking shares.
Back at end-March, and amid the failure of Silicon Valley Bank and 2 other regional US lenders, "the market surmised the Fed had just carried out its last rate hike and was expecting the Fed Funds [rate] to be at around 4% by the end of 2023," says a note from analysts at French investment bank Natixis.
"Three months later, the market is pricing in [yet another] 25 basis point increase to a [ceiling] of 5.50% at the July meeting [and] the publication of the FOMC minutes this week, plus the resilience of the US economy, suggest that the Fed could go [even] further."
"When the Fed started raising interest rates to fight inflation," says an article at the Wall Street Journal, "the conventional wisdom was that it would be a boon for Main Street banks. 
"Instead, the opposite is happening...[as] once-loyal customers pull their money out of checking accounts that pay no interest. [Smaller] banks are [also] paying much higher rates on the deposits they are retaining, which is eclipsing the benefit of charging more on loans."
Corporate bankruptcies have jumped with interest rates so far in 2023, with the first-half of the year seeing the most new filings since 2010 according to analysts S&P Global, with the weekly pace of filings growth across June almost matching the worst of the 2020 Covid crisis according to analysis by Torsten Slok at half-trillion dollar asset managers Apollo.
Silver meantime rallied with the gold price on today, reversing two-thirds of Thursday's 70 cent plunge to trade back at $23.00 per Troy ounce – little unchanged from last Friday – as London trading ended for the week.

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum 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 he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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