uploads///gold price versus real interest rate

After Optimistic Employment Data, Bullions Take Downward Turn

By

Updated

Bullions slide

Gold fell 0.28% on Friday, September 4, 2015, closing at $1,121.40 an ounce with a high of $1,133.10 and a low of $1,115.70. The US unemployment data released on Friday played a role in gold’s downward slide. As we’ been seeing, the better the economic outlook for the country, the worse the news for gold buffs.

Also on September 4, platinum and palladium fell 1.75% and 0.76%, respectively. Silver futures contracts on COMEX (Commodity Exchange) for September delivery fell 1.07% and settled at $14.55.

Article continues below advertisement

Gold-leveraged ETFs like the Direxion Daily Gold Miners Bull 3X ETF (NUGT) and the Direxion Daily Junior Gold Miners Bull 3X ETF (JNUG) saw positive returns as of September, rising 1.06% and 2.95%, respectively. These ETFs have seen negative returns on a five-day trailing basis, losing ~16% and ~14%, respectively.

Fed lift-off conundrum

The unemployment rate released was 5.1%, better than the 5.2% that was expected. Unemployment rates are a vital economic health indicator, as they correlate strongly with labor market conditions. Additionally, unemployment figures can help provide direction for a country’s monetary policy settings.

In the current scenario where the FOMC (Federal Open Market Committee) is considering raising the interest rate, positive data releases should likely give impetus to the lift-off conundrum. However, the non-farm employment change data indicate that employers added 173,000 new jobs in August. These figures are positive, though they fall short of The Economist‘s new job estimate of 215,000.

Article continues below advertisement

Looking at the Gold Price versus U.S. Real Interest Rates chart above, we can review the historical relationship between gold prices and US real interest rates. Generally, there’s an inverse relationship between employment data and gold bullion prices. As a result, the positive outlook for employment data has had a negative impact on gold and other precious metals.

Since gold and other precious metals are non-interest–bearing, treasuries and investors will likely seek out interest-bearing investments. Over the past few months, the possibility of tightening monetary policy has also had a negative impact on gold prices.

Miners take a hit

Miners took a hit as gold prices fell on September 4. Major mining companies like Barrick Gold (ABX), Agnico Eagle Mines (AEM), Royal Gold (RGLD), and Newmont Mining (NEM) fell 3.14%, 3.5%, 2.96%, and 0.12%, respectively. These mining equities together make up about 22% of the VanEck Vectors Gold Miners ETF (GDX).

Advertisement

More From Market Realist