Gold Glitters Amid Positive Employment News
It was another shortened trading week as major markets in the U.S. were closed on Monday, in observance of New Year’s Day. Following record losses for U.S. Treasuries and equities and slight gold and silver gains in 2023, investors looked to Tuesday’s FOMC minutes and employment data later in the week for clues into Fed policy and U.S. economic health.
After gaining 0.9% in 2022, gold began the first day of 2023 trading on positive footing, while silver saw little change near $24 an ounce. On Tuesday, gold rose 0.6% to the $1,838 mark as Treasury yields fell. Meanwhile, investors took in minutes from the Fed’s December meeting.
According to the meeting minutes, Fed officials are waiting for more actionable data to be convinced that inflation in the U.S. is in a sustained downward trend. In an effort to combat inflation, all 19 of the top Fed officials noted that interest rate hikes should be expected throughout 2023, until it’s clear that inflation has eased.
While stocks in the U.S. initially opened higher, major averages would settle for slight losses on Tuesday, following the FOMC minutes release. On Wednesday, the dollar and Treasury yields both faced selling pressure, which allowed gold to hit a fresh six-month high near $1,865. On the same day, silver diverged from gold with a 1.2% decline to $23.78.
Stocks tumbled on Thursday, following positive jobs data. For some, this meant that the Federal Reserve was more likely to remain aggressive in terms of interest rate increases. The prospect of continued Fed hawkishness meant that gold and silver would dip lower on Thursday as well. By the end of trading, gold had fallen 1.4% to $1,832, while silver had dipped by 2.4% to a closing price of $23.19.
Jobs data drove investor sentiment again on Friday following news that Nonfarm payrolls had risen by 223,000, which exceeded forecasts of 200,000. At the same time, news broke that the ISM service sector index sunk to 49.6% in December, from 56.5%. The drop exceeded expectations, and signaled economic slowdowns, as numbers below 50% are indicative of economic contraction. This data provided by the Institute for Supply Management was the first negative ISM reading since the height of the COVID-19 pandemic in 2020.
Following the news, stocks in the U.S. staged their first rally of 2023, as the Dow Jones Industrial Average and Nasdaq Composite both rose by around 1.8%. Gold and silver also rallied on Friday. As this is written, gold is near a 7-month high of $1,864. If maintained, that would be a 2% weekly gain for the yellow metal, and its third consecutive week of gains. While silver rallied this morning, the gray metal is currently trading near $23.82, which is 0.9% lower for the week. Next week’s economic calendar includes the Fed’s 1 and 5-year inflation projections, followed by inflation news and consumer sentiment data later in the week.