Gold is facing a downward trend following a bull phase, triggered by the comments from the Federal Reserve last week and unfavorable US nonfarm payrolls data. The latter could influence the direction of US interest rates, which could in turn affect the gold market.
The Fed chose to keep rates unchanged on May 1, 2024, although it confirmed its intentions to cut them in the future. However, the US central bank expressed concern about the recent disappointment in inflation data, which could delay such cuts.
Additionally, the US unemployment claims report on May 2, showed that the number of claims remained low compared to the previous week. This data suggests a persistent and robust labour market in the US likely to support economic growth in the second quarter.
“The strength of the labour market could translate into increased consumption and investment, which historically has negatively affected the price of gold,” said Ernesto di Giacomo, an analyst with XS.com.
Investors seek refuge in assets like gold during economic or market uncertainty. Still, the outlook for a strong labour market could diminish the demand for safe-haven assets and apply further pressure on gold prices.
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Dollar strength can also hit gold prices
Another critical factor putting pressure on gold is the dollar’s relative strength. The US currency has shown resilience against other major currencies, making gold, priced in dollars, more expensive for foreign investors and reducing its appeal as a haven.
Additionally, geopolitical developments and other external events can influence the price of gold. For example, geopolitical tensions or the monetary policy of other major countries can significantly impact investors’ perception of risk and, thus, the demand for gold.
In summary, gold is experiencing a moment of uncertainty due to a series of factors, including the Fed’s monetary policy decisions, US economic data, and the dollar’s strength.
While the yellow metal has experienced a recent decline, its short-term trajectory will largely depend on how these factors unfold in the coming days and weeks. Investors will watch for further hints from the Fed about its interest rate plans and any changes in critical economic data.
Ultimately, the direction of the gold price will continue to be influenced by a combination of economic, political, and external factors, making its future challenging to predict with certainty.
Higher gold prices bring new investors
Higher gold prices have been bringing new investors into the market as well. Gold investing among UK and other Western households rebounded from a record low in April, jumping at the fastest pace in almost 4 years on BullionVault’s Gold Investor Index as gold prices leapt to extend 2024’s run of fresh all-time highs.
The number of first-time investors in gold also rebounded, helping offset further profit-taking among existing holders and cutting the pace of net selling by more than two-thirds from the record outflow of March.
Last month’s jump in new users – the sharpest jump since April 2020, when the Covid crisis unleashed record heavy gold demand by a record number of new Western investors – was led by a 95.9% rise in the UK versus its 12-month average and a rise of 88.1% in France. New interest in the USA was more muted, rising only 39.5%, while Germany rallied just 24.6%.
“This spring’s rebound in Western gold investing is dramatic, but it comes off a very low base,” said BullionVault director of research Adrian Ash. “With prices setting yet more all-time highs in April and now holding firm at what were new records only a month ago, that shows just how strong gold demand is running among Asian investors and savers, most especially in China. Emerging-market central banks also continue accumulating gold bullion as the wars in Ukraine and Gaza worsen geopolitical and financial tensions between the major powers.”
