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Why Unemployment Claims Are Affecting Gold Prices

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Mar. 7 2016, Published 12:21 p.m. ET

Economic data

Gold for April delivery rose 1.3% on Thursday, March 3, 2016. The rise of gold was also accompanied by the rise of silver, platinum, and palladium. These three metals rose 0.83%, 0.69%, and 5.2%, respectively, on Thursday. The US economic data that came out on Thursday negatively affected the dollar. For the week ending February 27, unemployment claims came in at 278,000, which was higher than the expectation of 271,000.

Further, the US economy’s service sector expanded at a slower pace. The ISM nonmanufacturing PMI (purchasing managers’ index), or the services PMI, reached 53.4, which was higher than the expectation of 53.2 but lower than the previous month’s reading of 53.5.

The economic numbers released last week have done little to encourage the Federal Reserve to raise interest rates, thus helping the non-interest–bearing precious metals.

On March 3, Robert Kaplan, the Dallas Federal Reserve President, called for the US central bank to be patient in raising interest rates, as the global financial tightening may weigh on the US economy.

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Other investments

The rise in gold last week was due to the increased likelihood that the Federal Reserve will delay its rate hike. The increase in interest rates during mid-December had weighed on the non-yield–paying gold and silver. Conversely, a delay in the rate hike should give a boost to the bullions. The global unrest that started at the beginning of the year has left fear looming over major economies like that of the United States, and this will have an impact on bullion investments, as well.

The gains in gold and silver on Thursday spread to funds like the Global X Silver Miners ETF (SIL) and the VanEck Vectors Gold Miners ETF (GDX). These two ETFs also rose 5.4% and 4%, respectively, on Thursday. The mining-based shares that remained the biggest winners included Alamos Gold (AGI), Newmont Mining (NEM), and Coeur Mining (CDE).

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