US Jobs Miss Sinks Gold, -2% for Week on Record Snap vs. TIPS Real Rates
Friday, 5/03/2024 16:06
The PRICE of GOLD sank on Friday, losing almost 2% for the week in US Dollars and hitting 1-month lows against all major currencies despite sudden and surprise weakness in US jobs, wages and services-sector numbers driving borrowing costs and real interest rates sharply lower.
Stock markets leapt with bond prices as traders rushed back to betting that the Federal Reserve will start cutting US interest rates in September, with another cut now expected by year-end.
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That saw the yield offered by Treasury inflation-protected securities fall to 2.17% per annum, the lowest such 'real rate' since bullion prices hit their
current all-time gold highs above $2400 three weeks ago ahead of Iran hitting Israel with drones and missiles in retaliation for the killing of senior Islamic Revolutionary Guard Corps commanders in Syria.
But rather than rising as TIPS yields fell back – as per their long-term historical relationship – the price of gold today sank to $2277 per Troy ounce, its lowest since 5th April in spot-market trading.
That extended gold's record-run of positive co-movement with the direction of real rates, a period starting at the end of March that last month saw it set a record run of new record gold highs even as inflation-adjusted borrowing costs rose.
On a rolling 1-month basis across the past 2 decades, the daily price of gold has seen a typical
correlation against inflation-protected Treasury rates of -0.45 on the 'r' coefficient.
That figure would read +1.00 if they moved together in lockstep, or -1.00 if they moved exactly opposite all the time. The relationship has been negative – with gold rising or falling in opposition to the direction of 10-year TIPS yields – fully 75% of the time since January 2003.
From 28 March to today however, gold has shown a positive 1-month correlation with 10-year TIPS yields, a historic unbroken run of 25 sessions in a row.
"Gold [was] discounting a collapse in real rates," said a note from Swiss bullion refiners MKS Pamp's Nicky Shiels earlier this week, ahead of today's price drop.
Today's US jobs data said the world's largest economy added only 175,000 net hires in April.
That was the weakest growth since November on the Bureau of Labor Statistics monthly non-farm payrolls estimate, and it missed consensus forecasts by over 25%.
Average US wage growth also slowed harder than expected, dropping to 3.9% per year, while the unemployment rate rose to that same figure, the worst since January 2022.
The USA's massive services sector meantime contracted for the first time since that New Year as well according to the ISM institute's PMI survey, with activity shrinking rather than accelerating as analysts had predicted.
Bond prices leapt on the news, driving longer-term borrowing costs down to 4.50% per annum on 10-year US Treasury debt.
That's the lowest since Friday 12 April, when gold topped a stellar run of new all-time highs with a spike above $2400.
Yet gold in contrast plunged today, ending the week in London 4.2% below that record 3pm benchmark price and fixing around $2300.
Silver prices also whipped and fell on today's poor US jobs and service-sector data, but the more industrially-useful precious metal held 10 cents above yesterday's 4-week low of $26.02 per Troy ounce.
Following this week's US Fed decision to hold overnight rates at a 2-decade high while slowing the pace of its QE bond sales, the giant GLD gold ETF shrank yet again Thursday, heading for its first net weekly outflow of investor money in four.
The smaller IAU gold ETF also shrank again, as did silver's giant bullion-backed SLV trust fund.
The
UK gold price in Pounds per ounce sank as low as £1812 per ounce – down 7.3% from its record high of 3 weeks ago – while the price of gold in Euro terms fell through €2120 for the first time in 4 weeks.
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