Gold Reacts to Three Distinct Events

One of the more famous catchphrases from the 1960s sitcom ‘Get Smart’ was “Missed it by that much.” Holding up a thumb and forefinger to demonstrate an extremely small space, Maxwell Smart (Agent 86) would use this phrase to describe his failure.

Missed It by THAT Much

That same catchphrase could be used for the estimates economists gave this week for the Labor Department’s Jobs report. The median estimate created through a survey of economists came in at 205,000.

The actual numbers reported by the Labor Department today show that the U.S. economy’s growth was so robust last month that it added 313,000 new jobs. This marks the most massive hiring spree since the middle of 2016. It demonstrates that the economy has been robust and, more importantly, growing.

The net result of these numbers was that U.S. equities and bond yields moved higher and at the same time, safe-haven assets such as gold moved lower.

First, today’s jobs report certainly put downside pressure on gold. Immediately following the release of today’s report, gold traded moderately lower to $1,313 per ounce. However, prolonged wage growth of only 2.6% dampened the selloff as traders bid gold’s pricing back above its open, closing at $1,324.20.

Increased Probability for a Rate Hike This Month

In his first testimony to both the House and Senate, newly appointed Fed Chairman Jerome Powell indicated that his assessment of the economy had changed from December. New economic data indicated a much more robust economy then the data the Federal Reserve members saw in December. This increases the probability for the initiation of the first rate hike of 2018.

Fed officials are now expected to raise rates when they meet March 20-21. Powell told lawmakers he would not prejudge the outcome, though the committee will take into account data that has shown a stronger U.S. economy and signs of inflation moving higher.

Trump-Kim Summit

Earlier today, it was announced that President Trump has agreed to meet with the leader of North Korea, Kim Jong Un. This would mark the first time a sitting U.S. president has met with a North Korean leader. This will also be the first occasion that a North Korean leader has been willing to meet on neutral territory. The meeting is scheduled to take place in May and has undoubtedly allowed geopolitical tensions to subside.

The combination of these three events has curtailed any upside movement in gold pricing. Strong employment numbers, an almost certain interest rate hike, and the warming of tensions between the United States and North Korea will undoubtedly cause market sentiment to continue to favor the risk-on asset class over safe-haven assets.

All things being equal, we can expect to see neutral to lower pricing in gold and silver next week.

Wishing you as always, good trading,