How the Fed's Meetings Are Slaying Gold

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Part 2
How the Fed's Meetings Are Slaying Gold PART 2 OF 7

How the Numbers Played on Gold on May 3

The economic numbers on Wednesday

Fluctuations in precious metals are largely determined by the overall stance of the economy, and the economic numbers that came out on Wednesday, May 3, played a big hand on these metals. The ADP Non-Farm Employment Report, which measures the estimated change in the number of employed people during the previous month (excluding the farming industry and government), stood close to the analysts’ expectation of 178,000. 

Meanwhile, the ISM Non-Manufacturing PMI (purchasing managers’ index), while measures the level of a diffusion index based on surveyed purchasing managers (excluding the manufacturing industry) was optimistic at 57.5—higher than the forecasted figure of 56.1

How the Numbers Played on Gold on May 3

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Volatility and gold

To be sure, the optimism that results in markets due to such positive numbers helps lower the demand for precious metals like gold and silver. In the same way, changes in precious metals are determined by volatility in markets. The higher the volatility or instability in the markets, the lower the demand for precious metals.

The above chart shows the performance of gold as compared to the CBOE Volatility Index (VIX) (VXZ) (VXX).

Market sentiment and global risk appetite

However, the most important driver for gold lately has been overall market sentiment and global risk appetite. Market volatility often gives a positive kick to gold (IAU) (SLV), while precious metals’ safe-haven appeals come into play when investors look for safety during volatile times.

The mining shares that rose on Wednesday, May 3, despite the fall in precious metal prices, include Aurico Gold (AUQ), Primero Mining (PPP), Yamana Gold (AUY), and Cia De Minas Buenaventura (BVN). These stocks rose 3.6%, 12.5%, 0.38%, and 1.5%, respectively, on Wednesday.


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