Why Did Falling Jobless Claims Weigh on Gold?



Jobless claims fell

Gold prices suffered on April 14, 2016. The probability of a Fed interest rate hike was highlighted by the best employment data in decades. Unemployment claim numbers measure the number of individuals who filed for unemployment insurance for the first time during the past week. It was as low as 253,000. The expected figure stood at 270,000. A lower number benefits the economy. This figure was higher than 600,000 during the financial crisis.

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When weekly jobless claims are lower, the economic strength is higher. This boosts the probability of an interest rate hike. The hawks at the Federal Reserve would have likely taken a breather with such data. Gold fell almost 1.7% and closed at $1,226.5 per ounce. It touched the day’s low of $1,225.4. Alongside gold, gold-based funds also gave up their prices.

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Leveraged gold funds

The funds that have been closely tracking the fluctuations in gold include the SPDR Gold Shares (GLD) and the iShares Gold Trust (IAU). The leveraged miners that often amplify the returns in gold include the Direxion Daily Gold Miners ETF (NUGT) and the Direxion Daily Junior Bull Gold 3X (JNUG). However, the Direxion Daily Junior Gold Bear 3X (JDST) is an inverse fund. It reacts in the opposite direction to gold. The performance of these leveraged funds compared to the SPDR Gold Shares, the largest ETF, is shown above.

When the economy is stronger, the Fed is in a better position to raise the interest rate. When the interest rate is higher, investors would be more likely to opt for investments that pay yields compared to non-yield bearers such as gold and silver.

As investments in other assets rise, the safe-haven appeal of the bullion is also endangered. It’s important to remember that precious metals have risen exponentially in 2016 mainly due to their safe-haven appeal.


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