Spot gold closed with a weekly gain of nearly 1.50% % at $2017.56. The metal slid sharply lower Friday on seemingly a much better-than-expected US nonfarm payroll report for April. Friday’s loss cut its weekly gain nearly in half.
Earlier, gold refreshed its all-time high as it rose to $2080 on May 4 in the wake of the US Federal Reserve’s monetary policy decision. It made a new record high in the Indian Rupee terms, too, as the MCX June gold contract hit the Rs 61,845 mark.
The US employers added 253k jobs in April as against the forecast of 185k jobs, thus beating the estimate by a wide margin.
However, it is to be noted that the combined figures for February and March were revised lower by 149,000 jobs. The US unemployment rate slid to 3.4%, a fifty-year low, from 3.50% in April, and well below the forecast of 3.60%.
Average hourly earnings rose 0.50% on a month-on-month basis, which beat the forecast of a 0.30%% rise. Average hourly earnings were up 4.40% on a year-on-year basis as against the forecast of a rise of 4.20%.
The US regional banks had some respite Friday as the beaten-down banking stocks recovered, which took the US KBW Bank index 4.60% up Friday, though the Index was over 7% lower on the week.
The World Gold Council released its gold report for the first quarter of 2023. The report portrayed a mixed picture of gold demand in the first quarter. As per the report, central banks continued to buy gold, and Chinese demand rose, while Indian demand for gold and ETFs’ contribution fell.Overall, Q1 demand at 1081 tons fell 13% year-on-year. The official sector added 228 tonnes to global reserves. India’s demand for gold fell sharply lower on high volatility and high prices.
ETFs and similar products witnessed a net outflow worth 28.7 tons in Q1 2023. Comparingly, Q1 2022 witnessed a net inflow worth 270.70 tons. China’s jewelry demand at 198 tons was the highest in any quarter since Q1 2015, while India’s jewelry demand slumped to a three-year low.
In the much-awaited FOMC monetary decision on May 3, the US Federal Reserve hinted at a possibility of a pause but made it highly data-dependent.
The Fed will release its quarterly Senior Loan Officer Opinion Survey, or ‘SLOOS’, on May 8; the report will reflect how banks are tightening standards for commercial and industrial credit. The National Federation of Independent Business (NFIB) will release its April survey of small businesses on May 9.
The February SLOOS survey showed that the net percentage of banks reporting tightening standards shot above 40% in the fourth quarter. Credit conditions for small businesses are tightening, too.
Apart from these two reports, next week’s focus will be on the US inflation data for April and developments in the US banking sector as well. As such, the US inflation readings indicated by the core PCE deflator and GDP price index remain elevated. Strong nonfarm payroll report for April has made the US Federal Reserve’s job tougher, so the June FOMC meeting will be in focus.
Two-year US yields fell around 2.50% on the week to 3.91%. The US Dollar Index failed to gain upward traction on the US nonfarm payroll report and settled nearly 0.50% lower on the week at 101.28.
(The author is Associate VP, Fundamental currencies and Commodities, Sharekhan by BNP Paribas)
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