Gold was once again seeing pulled and pushed by various factors doing rounds in the market. Where one side Gold Prices May was seen consolidating by a strong dollar price on Wednesday, on the other hand on Friday it once again picked momentum over the North Korean crisis.
Gold prices fell for the fourth consecutive week with the precious metal down nearly 0.5% to trade at 1271 ahead of the New York close on Friday. The losses come amid what seems to be an unstoppably rally in broader risk assets with the major U.S. equity indices up more than 1% on the week.
A surprise U.S. Non-Farm Payroll report on Friday showed the economy shedding some 33K jobs last month, missing expectations for a gain of 80K. However, a closer look at the data revealed underlying strength in the labor markets with labor force participation rising to its highest level since March of 2014 at 63.1%. Wage growth figures were also stronger-than-expected with average hourly earnings posting a 2.9% gain – up from a previous upwardly revised 2.7% . With the recent barrage of hurricanes largely accounting for the weak headline figure, the broader labor market outlook remains firm and keeps the FOMC on target for a December rate hike.
The dollar earlier rose to a more than two-month high against the yen and seven-week high against the euro as wage data from the September labour market report was seen as a sign of potentially improving inflation.
The greenback jumped as high as 113.43 yen, the highest level since July 14, before dropping to 112.71. The euro fell to $1.1670, the lowest level since Aug. 17, before rising back to $1.1726.
The U.S. dollar tumbled on Friday on a report that North Korea is preparing to test a long-range missile, overturning earlier gains after the government’s jobs report for September showed an unexpected rise in wages.
RIA news agency cited a Russian lawmaker’s making comments on the missile test, which North Korea believes can reach the U.S. West Coast.
Amidst these tumbling and rising influencers, gold prices are expected to surge not only in the international but also domestic market given the upcoming and biggest festival for gold in India.
A few reasons why we expected gold prices to shoot are:
10 reasons why gold will surge:
- Gold will follow inflation which will increase strongly eventually leading to hyperinflation
- Real interest rates will be negative which favours gold. This was the case in the 1970s when gold rose from $35 to $850 despite rates in the mid-teens.
- Gold Prices May China’s accumulation of gold on a massive scale and potentially introducing a gold for oil payment system
- Inflation will increase institutional gold buying substantially. Gold is today 0.4% of global financial assets. An increase to 1% or 1 1/2% would make the gold price go up manifold.
- With relatively low global demand today, annual goldmine production of 3,000 tonnes is easily absorbed. With falling production, the coming upturn in demand can only be met by much higher prices.
- Demand for gold will rise in the domestic market during Dhanteras and Diwali. After Akshaya Tritiya, gold sales are seen to be highest on Dhanteras and this rising demand might push gold prices further.