What a plunge for gold! Following a monumental rise for the yellow metal at the start of January, it plateaued around 1,570, but still appeared to be an attractive investment. However, after a month-high peak of 1,589.45, it has now sharply declined over the past few days, dropping 1.5% and sitting below the 1,553 mark, and looking to drop further still.
This development comes as we move closer towards the Non-farm payroll (NFP) release on Friday, and investors are forecasting a positive consensus of 160k employees, up from the previous month of 145k.
The NFP is a data release of various statistics showing the employment situation in the US, including the number of people employed, minus agricultural workers of course. The release of the NFP at the beginning of each month sees the market move rapidly as investors try to anticipate whether the US economy will be looking weak or strong, and price in accordingly.
Other factors that could be influencing investors’ move away from gold is the fact that unlike the USD, gold doesn’t generate any interest. However, this move is still unusual as gold is historically a more stable asset, especially during times of economic instability. It can also be explained by investors moving back towards riskier options as short-term fears over the coronavirus eases.
Head of FX and Metals, Anish Lal, said this to say on gold:
“The mighty dollar rules all! Investors continue to flock into the safe arms of the US Dollar, which as an index has already gained a near 2% this year. Usually markets with heightened risk like to stick with Gold, however, as a non-interest bearing asset and with the US economy coming on leaps, investors are slowly sketching off Gold's alias as the world's safe haven. We could well continue to see the US Dollar continue to outperform it's weaker counterparts, including the EUR, AUD, NZD and JPY - especially in light of expected positive GDP data and NFP print for this week.”
For more information, watch Anish’s full analysis here, or on Instagram at blackbull_markets.