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Gold drifts lower as fewer jobless claims suggests continued economic strength

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For the first time in three weeks, applications for unemployment benefits have declined. This implies that corporations are steadily maintaining their current employees. From this, one can infer that economic strength continues to persist. The Labor Department reported that US jobless claims decreased by 9,000 applications, resulting in only 218,000 new applicants applying during the week ending on February 3. This came in slightly below the median forecast, which anticipated that 220,000 new applications would be filed, according to a Bloomberg survey of economists. This comes in light of several high-profile companies such as United Parcel Service and multiple tech industry companies reducing their number of employees.

Federal Reserve officials have stated that they will begin to pivot from rate hikes to rate cuts this year. It is the timing of the first rate cut that market participants have been attempting to anticipate.

For the most part, investors have been overly optimistic formally anticipating the first cut to possibly occur as early as March, which Chairman Powell strongly suggested is highly unlikely. Although the chairman as well as other Fed members have had a positive reaction to the most recent data revealing inflationary pressures continue to decline. They have also stressed that more data is needed to be comfortable enough to make the first rate cut. Currently, it is believed that the earliest the Fed will cut rates would be at the May FOMC meeting, and almost certainly the Fed will have begun its series of rate cuts by the June FOMC meeting.

This has added a negative price bias to gold. Gold closed at $2074 on Thursday of last week and has since declined by just over $25 per ounce. As of 5:50 PM ET gold futures basis the most active April futures contract is lower by $3.80 and currently fixed at $2047.90. Most of today’s fractional decline can be directly attributed to dollar strength, which gained 0.12%. Considering that gold futures declined by 0.19% only a fraction of today’s decline can be attributed to market participants bidding the precious yellow metal lower.

Wishing you as always good trading,

Gary S. Wagner - Executive Producer