Global Appetite for Risk
The gold market continues to take its cues from the stock market and global appetite for risk. As stocks rallied sharply on Wednesday, the yellow metal took a dive, dropping by nearly $30 per ounce to $1699. The decline took the metal below the significant $1700 level and could point to further weakness ahead.
The reading on the jobs market today by ADP may have been behind some of the selling in gold. According to ADP, the U.S. private sector shed some 2.76 million jobs in May. Although that is a very large figure, it is significantly smaller than the forecast of some nine million jobs lost and set the stage for a rally in stocks and a decline in perceived safe haven assets. Revised ADP data said that some 20 million jobs were last in April during the height of the COVID-19 pandemic as the economy essentially ground to a halt.
Wednesday’s ADP jobs data may lend some support to Friday’s non-farm payrolls report. Before getting overly optimistic, however, it is important to understand that these two labor reports have not always been on the same track. Today’s ADP data may not, therefore, be considered an accurate predictor of Friday’s non-farm payrolls report. Consensus estimates are looking for a decline in non-farm payrolls of around eight million. A miss on Friday could set the stage for a significant stock reversal, while a better than expected figure could pave the way for even more equity upside. The tech-heavy Nasdaq is within striking distance of its all-time highs and could see those highs exceeded with another strong day or two. The benchmark S&P 500 and Dow Jones are also not far behind and could potentially see a test of previous highs in the coming weeks.
As stocks move higher, pressure could continue to mount on the gold market. Although the yellow metal would seemingly have everything it needs working in its favor, a stubbornly bullish stock market could stand in the way of a test of previous all-time highs near $2000 per ounce.
Recent protests and rioting in the U.S. could be the next major catalyst for gold and stock markets. Protests have been going on for over a week now after the death of an unarmed African American man at the hands of a white Minneapolis Policeman. Protests have at times turned into riots. Major cities such as New York City, Chicago, Los Angeles and Washington D.C. have all seen significant criminal activities in recent days. Widespread property damage and looting have been seen in addition to fires being set. Police have, thus far, appeared to be patient and understanding of protestors. That could change, however, as the days drag on and violence increases.
The uncertainties surrounding the COVID-19 virus and ongoing racial protests could keep buying interest in gold elevated. In what could be a double whammy, the protests could lead to another rapid outbreak of COVID infections and a return to previous lockdown guidelines.