The gold bulls have finally been able to stop the bleeding, at least for now, as prices have halted the near free-fall seen earlier in the week. Spot prices in early action Friday are slightly higher in the aftermath of the U.S. non-farm payrolls data.
In perhaps the most important data release of the trading week, non-farm payrolls showed a rise of some 372,000 jobs. This figure is sharply higher than the estimated figure of an additional 250,000 jobs added and compares well to the previous month’s addition of 390,000 jobs. The unemployment rate was 3.6%.
Gold dipped immediately following the release of the jobs data but has since rebounded. The data falls firmly into the hawkish camp and could clear the way for an increasingly aggressive Federal Reserve to continue hiking interest rates at a rapid pace. The Fed is likely to hike rates by another 75-points this month, and could even do so in the months ahead.
Treasury Yields vs. Gold
Possibly more important than gold’s reaction to the jobs data was the reaction in treasury yields. Returns for treasuries rose following the jobs data as worries over inflation may again be taking center stage. The rise in yields late this week could be a sign of inflation worries getting on par with concerns over the possibility of a recession this year.
The gold market saw a significant decline earlier in the week. Prices fell from over the $1,800 level to almost the $1,700 level within a couple of days. After first knifing through support at the $1,800 level, the bears then easily overtook support at the $1,750 area as prices declined below this key level. Spot gold has seen a slight rebound late in the week, however, and prices now sit around the $1,740 region.
The dollar is stronger in early action Friday and may continue its ascent in the months ahead. The euro may get pounded by the dollar, in fact, as concerns over inflation and the war in Ukraine make holding dollars the sensible move. The euro may see further weakness against the dollar, but not simply because the U.S. economy is outpacing the EU’s or because its pace of rate hikes far outreaches the pace of other nations. The dollar could be coveted by investors due to a strong U.S. economy, yes, but also due to risk aversion and the perceived safe-haven status of the greenback.
Eurozone and Bitcoin
Rising inflation combined with an energy crisis has fueled a major drop in the economies of the Eurozone. This trend may continue in the months ahead, possibly putting significant downside pressure on the euro in the process. Should the dollar maintain recent gains and probe additional upside, it could weigh on the gold market and keep any rallies limited in nature.
After hitting bottom around the $19,000 level last month, Bitcoin has seen what could be a meaningful bounce. The cryptocurrency has retaken the $20,000 level and now sits around the $21,640 area. As cryptocurrencies rise due to some recently reported bullish data, some are sounding the alarm bells. Crypto billionaire Sam Bankman-Fried, for one, has issued a crash warning about some currencies. Calling some cryptos an “empty product,” Bankman-Fried has suggested that these currencies have legitimate crash potential.
Bankman-Fried went on to also suggest that some cryptos are nothing more than Ponzi schemes, as they have no real use case potential. Their value may simply be defined by the amount of fresh capital being introduced.
Still Work to Do For Alternatives
The cryptocurrency markets still have to prove their use as a reliable safe-haven before investors flock to them en masse. Given that these products have only been around for a handful of years, proving themselves could take significant time. In the meantime, Bitcoin and other cryptos may remain largely speculative in nature and could see further price volatility in the months and years ahead. That being said, however, they do feature extreme profit potential and should not be taken lightly.
The gold bulls have their work cut out for them. The next several weeks could be very important for the gold bulls, as they attempt to stage a recovery from recent selling and volatility. The long-term bullish narrative for gold is unchanged. It is now just a question of who can see the forest through the trees.