On Friday, January 8, 2016, investors had their eyes on crucial data that came out that day. They were looking for clues about the direction of the economy, especially after recent market turbulence. The non-farm employment figures, which reflect the number of people employed except for the farming sector, came in positive for December 2015. The forecast was that there would be an additional 203,000 jobs added. But the outcome was ahead of predictions and came in at 292,000. The unemployment rate remained at 5%, just as expected.
These positive numbers boosted the overall US market sentiment but weighed down the safe-haven appeal of gold. These optimistic numbers make some people optimistic that there will be even better unemployment rates throughout the year. This positive news on the economic front clears the air for the gradual pace of interest rate hikes that the Federal Reserve has hinted at for 2016.
Gold loses luster
The rise of interest rates causes gold to lose its luster, as gold is non-yield-bearing like Treasuries. Rate increases can cause investor flight to yield-bearing assets, thus deserting precious metals and pushing their prices lower.
The loss in the price of gold and other precious metals is often replicated by ETFs such as the iShares Gold Trust (IAU) and the iShares Silver Trust (SLV). The fall in gold and future silver prices of 0.9% and 3%, respectively, on Friday, January 8, caused IAU and SLV to fall 0.56% and 2.4%, respectively.
Mining-based companies such as Alamos Gold (AGI), B2Gold (BTG), and Newmont Mining (NEM) fell 7.8%, 4.9%, and 4.5%, respectively, on the same day. These three companies together make up 7.9% of the price fluctuations in the VanEck Vectors Gold Miners ETF (GDX).