Want some futures trading education on how investor sentiment impacts gold prices? The price of these futures increased on April 5, as markets responded to a U.S. jobs report indicating meager growth in the nation's payrolls during March.
June gold futures trading on the Comex division of the New York Mercantile Exchange settled $23.50 per ounce higher at $1,575.90 after rising to as much as $1,580.80, according to Reuters.
The precious metal is frequently viewed as being a fear gauge, in that its value is inversely proportional to the concern that global market participants have about the state of the economy. When the sentiment of these investors rises, gold tends to fall. When they become more pessimistic, they generally put their assets into the precious metal.
Data provided by the U.S. Department of Labor indicated that during March, the nation's employers added a net total of 88,000 to their payrolls, Bloomberg reports. This figure was far below the median forecast of a gain of 190,000 that was predicted by economists taking part in a survey conducted by the media outlet.
"We're in a very difficult economic environment," Eric Zoldan, a New York-based investment analyst with JHS Capital Advisors LLC, told the news source in a phone interview. "There's going to be a lot of pressure on the market."
He noted the fact that the jobless rate fell to 7.6 percent from 7.7 percent the month before, but that the downward revision happened because the number of people looking for jobs declined, according to the media outlet.
Zoldan told the news source that "the most important thing is that the number of working adults is falling because they're dropping out of the labor force and they are dropping out at a precipitous rate."
Mark Luschini, chief investment strategist at Janney Montgomery Scott LLC based in Philadelphia, also expressed his concerns about how the jobs report will impact investor confidence, telling the news source in a telephone interview that the data "will spook the market and it obviously means that the Fed will remain on vigil with regards to the highly accommodative monetary policy."
Another reason that the lackluster jobs figures was bullish for gold was the fact that it increased the confidence of global market participants that the Federal Reserve will continue its existing monetary easing plans, which generally provides upward price support for the precious metal, according to Reuters.
The nation's central bank has kept its interest rates at near-record levels for years, and has been steadily purchasing debt-based securities in order to bolster the nation's money supply. The Federal Reserve has been buying these financial instruments at the rate of $85 billion per month.
"The payrolls report gives more credence to the idea that we are not going to see any tapering off of QE3. It's just a knee-jerk response, and I don't think it necessarily indicates that the market has bottomed out here," Bill O'Neill, partner of commodities investment firm LOGIC Advisors, told the media outlet.
Global central bank action
Bloomberg reports that while the Federal Reserve has been engaging in aggressive policies to stimulate its economy, central banks in many other jurisdictions have been taking similar steps in order to provide support to the global recovery.
"This is unprecedented on many levels," Pippa Malmgren, president and founder of London-based Principalis Asset Management LLP a former presidential adviser who worked for President George W. Bush, told the news source. "Not only do you have the most in terms of size of economy or number of central banks, but the effort is a record effort."
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