by: Stefan Gleason
Yesterday’s release of the April Non-Farm Payrolls report fueled a new gold rally. The yellow metal gained over $20 per ounce on the news.
The jobs report was a major piece of economic data-possibly the most important of the month.
Expectations were high-consensus estimates were looking for an additional 1 million jobs created last month as the economy looks to rebound from the viral pandemic. The 266,000 jobs added was far below that expectation, however, as the government-reported unemployment rate also ticked higher to 6.1%.
There are two primary issues at work in gold that could point to higher prices.
The first issue is the data weakness itself. If the jobs market is not strong and recovering, it stands to reason that other parts of the economy may also weaken.
April’s major jobs miss, in fact, will almost certainly throw cold water all over the notion of the Fed having to hike rates much sooner than expected. The non-farm data will give the central bank plenty of room to hold tight, maintaining ultra-low interest rates while also continuing its bond buying.
In other words, the lousy report is another sign the Fed will keep its foot on the gas pedal.
Not only does the poor data potentially affect the gold market, but the technical outlook for gold also saw marked improvement this week.
After breaking above key resistance at $1,800 on Thursday, the follow-through buying on Friday ended the week on a strong note. This market strength may bleed into next week, possibly fueling further buying and price gains in the days ahead.
The lack of momentum in gold this year had eroded much of the confidence in the market. Hedge funds recently lowered their bullish posturing in the gold market, according to CFTC data.
The yellow metal appeared stuck between the $1,700 and $1,800 levels and neither the bulls nor the bears seemed eager to make a move without some type of confirmation.
The bulls were provided that confirmation this week, however, as the market decisively took out the $1,800 level on a weekly closing basis.
As the old saying goes: “Good things come to those who wait.” That saying may be very indicative of gold’s future as the yellow metal potentially takes out previous all-time highs. A long, slower trend higher may also prove to be more sustainable compared to a quick, rapid move higher like the ascent seen in Bitcoin.
The yellow metal is poised for further upside, although there will be some hurdles along the way. Improving economies, monetary policy decisions may all play a role in gold’s future.
Regardless, the yellow metal appears to be in a very strong position to continue its climb higher. Easy monetary policies, stock volatility, dollar weakness and rising inflation are a few of the things that may keep the gold bulls motivated in the months ahead.