Gold prices steadily increase as the U.S. non-farm payrolls report beats market expectations. On Friday March 10, the U.S. Labor Department released the February employment situation report displaying a non-farm payrolls gain of 311,000, beating the expected rise of 255,000 jobs. January’s report showed an enormous spike of 517,000, making the wages report from this latest release appear tame in comparison, mitigating the high-than-expected rises.
As investors expect more interest rate hikes from the Federal Reserve in response to this report, investor demand for gold rises, and so do prices. On March 10, spot gold increased by 0.1% to $1,832.24 per ounce and gold futures rose by the same percentage point to $1,836.20.
Despite these increases, gold bullion remained down, losing 1.2% the week of March 10, continuing a six-week streak. Many analysts see this drop as a temporary event caused by fear-inducing Fed actions.
“The recent hawkish comments from the U.S. Fed Chair, a recovery in the greenback and easing fears of a recession in many economies caused a withdrawal of investment from gold-like safe-havens,” Hareesh V Nair, Geojit Financial Services’ head of commodity research, explains.
Just a few days before March 10, Jerome Powell, a Federal Reserve chairman, warned of aggressive interest rate hike strategies to combat inflation. “Although inflation has been moderating in recent months, the process of getting inflation back down to 2% has a long way to go and is likely to be bumpy,” Powell explains.
High interest rates can discourage investments in any non-yielding assets, like bullion. It’s important to remember, however, that many factors influence gold prices. The gold market is multifaceted, and cannot be substantially impacted by a singular policy in one country.
Investors can see this theory in action when gold prices continued rising on March 9 by 1% with the softening labor market despite the climbing interest rates. Analysts predict that the reason behind this climb can be connected with unemployment claim applications reaching the highest they’ve been in the last five months.
After the report released on March 10, the demand for risk-aversion safe-haven gold increased. Conversely, riskier assets, like the global stock market and U.S. stock indexes all dropped overnight.
At the same time, a major organization controlling many market aspects collapsed, causing rippling effects that only make gold look more appealing. SVB Financial, Silicon Valley Bank’s holding company and the 16th largest commercial bank in the U.S., lost 60% of stock values after pulling out $2.25 billion in emergency capital to cover losses of $1.8 billion from its $21 billion bond portfolio. As one of the biggest players in the crypto sphere, this plummet led recent news headlines to state “Bitcoin plunges below $20,000 with little reason to buy; it could get worse fast.”
S.P. Angel, a corporate brokerage company, explains, “Markets look vulnerable to further shocks as the Silicon Valley Bank collapse in California lends weight to a risk-off strategy. To quote Warren Buffett: ‘Only when the tide goes out do you discover who’s been swimming naked.’ Every institution holding treasuries is now sitting on paper losses and will be forced to crystalize real losses if required to sell. Shares in JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo, the largest U.S. lenders by assets, all fell by between 4.1% and 6.2%.”
The fall of these major markets paves the perfect path for gold to rise. When investors must reconsider their portfolios, they’ll seek the asset classes that aren’t plummeting with the market. Unfortunately, doing so isn’t always as simple as it seems because predicting politics and economic factors can feel like a pure guessing game.
“Ultimately, what we’re seeing today is a very defensive response to a series of events that have left investors with many more questions than answers, and fearing further ripple effects in the financial sector. It’s understandable but yet unclear how long that will last and whether it will worsen,” Craig Erlam from OANDA explains.
Today, March 23, spot gold is up to $1,999 per ounce, displaying an enormous increase since the report announcements on March 10. Gold crept over the $2,000-per-ounce line earlier this week, marking the highest price point since early 2022 when Russia invaded Ukraine. Clearly, the temporary dip in gold prices during February was just that: temporary.
With gold on an impressive rise as other assets fail, more investors want to join its bandwagon. As always, investors should consult their advisors before making any decisions with their portfolios.