Recently, gold prices have been in the midst of a slide downward as pressures from the United States dollar and advancing United States economy have been putting pressure on the precious metal. However, today we’re seeing gains in gold price yet again as pressures from the United States weaken and Jewelers in India prepare for the wedding season gold rush. Today, we’ll talk about the recent pressures that gold has faced, what is changing, and what you should be watching for ahead.
Gold Prices Se Pressure From US Economic Data
As mentioned above, the price of gold was recently hit by positive data out of the United States. Early in February, the non-farm payrolls report was released, showing strong growth in jobs in the region. Throughout the month of January, the United States added 200,000 jobs to the economy, maintaining an unemployment rate of around 4.1%. At the same time, wages saw their biggest increase since the end of the Great Recession.
While this news proves to be overwhelmingly positive for the United States economy, it puts quite a bit of pressure on gold. There are a few of reasons for this:
- USD Strength – At the end of the day, gold is priced around the world using the USD. Therefore, gains in the USD due to strong economic growth in the region mean that the price of gold gains in other currencies. This ultimately causes a decline in demand, pushing the value of gold downward.
- Safe Haven – It’s also important to keep in mind that gold is a safe haven commodity. Therefore, it tends to do best when economic and market conditions are concerning. With improving economic signals out of the United States, safe haven demand is likely to fall.
- US Rate Increase – Finally, the strong growth in wages suggests increasing inflation rates. If this is the case, the Federal Reserve is likely to increase its Federal Funds rate, providing more value to other safe haven investments and leading to further declines in safe haven demand for gold.
At the end of the day, nothing has changed when it comes to the United States economy. However, investors seem to be awaiting inflation results in the region before further devaluing gold based on a coming interest rate change. Not to mention, we’re starting to see some easing in the strength of the United States dollar.
However, there is some news coming out of India. At the moment, jewlers in India are starting to purchase massive amounts of gold. The purchases seem to be closely correlated with the fact that the wedding season in India is only 6 months away. During this season, gold sales in the region fly as gold is a key element of a traditional Indian wedding. As a result, the gains in demand from jewelers in India are helping to offset the declines in demand based on the USD and expectations of an interest rate increase.
What You Should Be Watching For Ahead
Moving forward, there is no question that we’re likely to see quite a bit of movement out of gold. In the near term, much of this movement is going to depend on a few key factors:
- Continued Buying Among Jewelers – Keep a close eye on demand coming from jewelers in India. As we get closer and closer to the wedding season in the region, we’re likely to see strengthening demand within this sub-sector of the gold sector. This could help to support further price growth.
- US Economic Data – One of the big factors at play here is the United States economy. Pay close attention to the inflation rate within the region for clues as to further strength or lack thereof in the USD, leading to pressure on the price of gold.
- Central Banks – At the moment, there are fears that the United States Federal Reserve and the UK’s Bank of England will increase their interest rates. If this does happen, it could lead to further pressure on gold as increased rates would expand the value of safe haven alternatives to gold.