uploads///Gold versus Two and Ten Year Interest Rates

How Economic Numbers Played on Gold on April 7

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Dec. 4 2020, Updated 10:52 a.m. ET

Adverse economic numbers

Besides the attack on Syria (as we discuss in Part 1 of this series), the rise in gold was also backed by dampened expectations that the Fed will raise interest rates two or three more times in 2017. But the weak economic numbers caused the rate hike expectations to diminish. 

The non-farm employment change, which measures the change in the number of employed people during the previous month (excluding the farming industry) came in at 98,000—much lower than the analyst expectation of 174,000.

The unemployment rate, however, fell to 4.5% from 4.7% as the number of people who found work outstripped the labor force. Remember, the unemployment rate measures the percentage of the total workforce that is unemployed and actively seeking employment during the previous month.

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Interest rates and gold

Average hourly earnings were in line with the forecasted figure. But the less optimistic that monthly economic numbers get, the tougher it gets for the US Federal Reserve to increase the rate of interest. This, in turn, gives some breathing room to non-yield bearers like gold and silver.

The above chart shows the performance of gold mapped against the US two-year and ten-year rates of interest. The higher the interest rates gets, the faster gold could tumble. Also, fluctuations in metals prices are usually followed by funds like the iShares Gold Trust (IAU) and the iShares Silver Trust (SLV). These two funds have seen year-to-date gains of 9% and 12.7%, respectively.

Precious metal mining shares that rose on Friday, April 7, included Eldorado Goldcorp (EGO), Coeur Mining (CDE), Randgold Resources (GOLD), and Newmont Mining (NEM).

Now let’s look at the impact of the scaling US dollar on gold.

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