By Barani Krishnan
Investing.com -- “The only thing that should surprise us is that there are still some things that can surprise us,” celebrated French author and 17th century moralist Francois de la Rochefoucauld said. That gold and U.S. jobs numbers could still surprise us this week despite the expectations baked into them was indeed a surprise.
After months of anemic action, gold prices suddenly broke out on Thursday, playing catch-up to the rally in a horde of commodities from oil to copper - and even soybeans - that had been reacting to U.S. inflationary pressures since the start of the year.
Conviction itself has been a rare commodity in gold since the yellow metal came off its $2,000 record highs in August and meandered for a while before stumbling into a systemic decay from November, when the first breakthroughs in COVID-19 vaccine efficiencies were announced.
Except for gold bugs who had sworn allegiance to the yellow metal, many long investors have been thrown off gold’s path after the travails of the past six months, which included 11-months lows at under $1,675.
Thus, with the recapture of the $1,800 berth on Thursday after a 10-week struggle, multiple price demands were set for gold by traders and analysts unwilling to agree that the yellow metal may finally be on the path of a renaissance.
Gold passed the first test set by naysayers on Friday by almost reaching $1,850 - a critical price point it has to cross in order to regain its past glory.
But the real surprise for investors on Friday were U.S. non-farm payrolls for April. With just 266,000 jobs added versus the forecast of 1 million, they just made some wince in disbelief.
After the stunning 916,000 jobs creation initially reported in March (revised to 770,000 in this report), many had counted on another blockbuster NFP for last month that would’ve extended the theme of a runway economy, spiraling inflation and need for Federal Reserve tapering of the easy money that had juiced markets through the pandemic. Each piece of the jigsaw had its own trade setup and the April NFP basically unraveled them all, forcing traders to rethink what could happen in the months ahead if the Covid impact on jobs was more impactful and stubborn than thought.
President Joe Biden suggested just that when he told reporters on Friday that "we're still digging our way out of a very deep hole we’ve been put in".
"No one should underestimate how tough this battle is,” the president said.
Biden said the economy was “moving in the right direction, but there's still a long way to go.” The April NFP report proves “the economy is not overheating, but it also shows there's a much bigger problem and more assistance is needed,” he added.
Markets were thinking deeper - to where this will all lead and whether it will mark a pivot in Treasury yields and the dollar. The dollar sunk on the NFP report while stocks surged, with the Dow and S&P 500 hitting record highs and the tech-laced Nasdaq settling sharply above the week's lows. Yields tied to the 10-year Treasury note tumbled as well, before putting in some recovery.
“I wonder if this is a game-changer and shifts the conversation towards the Fed's baseline about rates staying very low for a very long time along with only-transitory inflation,” economist Adam Button said in a post on ForexLive.
At least one game-changer may already be evolving in gold.
While the latest U.S. jobs report is a damper for inflation, it keeps alive the theme of monetary accommodation by the Fed, which is positive for gold.
The Fed has kept U.S. interest rates at between zero and 0.25% since the Covid outbreak last year, with Chairman Jerome Powell arguing that the rise in price pressures in recent months were temporary trends that would abate over time.
“Gold’s best friend is Fed Chair Powell and other doves that remain committed to the idea that temporary inflation won’t persist,” said OANDA’s Moya.
So, will gold cross $1,850 next week to break beyond $1,900?
No word certainty on that yet, but in the season of surprises, anything’s possible.
Gold Market and Price Roundup
Gold had its best week in six months as shockingly low U.S. payrolls numbers for April, coupled with the yellow metal’s belated catch up to inflationary trends, gave it a gain of 3.5% on the week.
Price-wise, gold was nearing peaks last seen 12 weeks ago, closing in on the $1,850 per ounce level, that could set up a return to $1,900 and ultimately the $2,000 record highs attained in August.
“Gold’s short-term momentum could make a run towards the $1,857 level, which could be followed by a move towards the $1,925 resistance level,” said Ed Moya, head of research for Americas at online trading platform OANDA.
Benchmark gold futures on New York’s Comex did a final trade of $1,831.95 before the weekend, after settling Friday’s trade up $15.60, or 0.9%, at $1,831.30. The session high was $1,844.40. For the week, gold futures showed a 3.3% gain, the highest since the week ended Oct. 30.
The spot price of gold did a final trade of $1,831.13 before the weekend, by rising $15.95, or 0.9%, after a peak at $1,843.36. For the week, spot gold printed a much higher gain of 3.5%.
Traders and fund managers sometimes decide on the direction for gold by looking at the spot price — which reflects bullion for prompt delivery — versus futures.
“Gold appears poised to hit $1,850 which will be the 200-Day Simple Moving Average,” technical chartist Sunil Kumar Dixit said, referring to the spot price. “From there, it could head up to $1,877, which would mark as a 50% Fibonacci retracement level of the move from the $2,075 record high to lows of $1,676.”
Oil Market Brief & Price Roundup
Oil put in a second week of gains as crude prices reentered range-bound trading on Friday on concerns about slowing U.S. jobs growth and the Covid situation in No. 3 energy consuming nation India.
New York-traded U.S. West Texas Intermediate crude, the benchmark for U.S. crude, did a final trade of $64.84 per barrel before the weekend after settling Friday’s trade up 19 cents, or 0.3%, at $64.90. WTI hit an eight-week high of $66.75 on Wednesday, before snapping a four-day rally. For the week, it showed a 2% gain.
London-traded Brent, the global benchmark for crude, did a final trade of $68.23 before the weekend, after settling Friday’s session at $68.28, up 19 cents, or 0.3%, on the day. Brent hit an eight-week high of $69.94 on Wednesday, before losing its upward momentum. For the week, it ended up 1.5%.
“Oil prices might have a positive second consecutive week, but it is nothing to get energy traders excited that oil will break away from its tightening trading range,” said Ed Moya, head of America’s research at online trading platform OANDA.
“India’s COVID situation could be approaching a peak, with one model eyeing 20,000 cases per day by the end of June,” Moya added.
India reported another record rise in coronavirus cases on Friday, logging more than 21.4 million confirmed infections and at least 234,083 deaths since the start of the break. Both of India’s case counts and deaths have crossed the halfway mark in the United States, the top infected country.
India’s Covid crisis could slash an extra 575,000 barrels per day of oil liquids demand in April and 915,000 bpd in May 2021, disturbing the almost-balanced global oil market and building a sizable glut, Rystad Energy warned earlier this week.
Energy Markets Calendar Ahead
Monday, May 10
Private Cushing stockpile estimates
Tuesday, May 11
American Petroleum Institute weekly report on oil stockpiles.
Wednesday, May 12
EIA weekly report on crude stockpiles
EIA weekly report on gasoline stockpiles
EIA weekly report on distillates inventories
Thursday, May 13
EIA weekly report on {{ecl-386||natural gas storage}
Friday, May 14
Baker Hughes weekly survey on U.S. oil rigs
Disclaimer: Barani Krishnan does not hold a position in the commodities and securities he writes about.