Stronger-than-expected US job creation data was reported on Friday, prompting fears that this may soon lead to a hike in interest rates. As gold reacted and suffered a sharp drop in price, this prompted some heavy buying activity from investors looking to take advantage.
Gold saw a sharp sudden fall in price on Friday afternoon. This price drop coincided with the USA’s release of the US Labor Department’s monthly report, which revealed a higher-than-expected rise in employment. According to the US Labor Department, the USA reduced their employment rate to 5.4% in July, adding around 943,000 jobs, despite the delta variant of the pandemic causing problems throughout many parts of the country. These figures are comfortably above the estimate of around 870,000, and the largest gain since August last year.
These payroll figures were seen as a gamechanger, as this positive progress shows that the US economy no longer needs the level of support that it once did, and this pushed the US Dollar higher. And, as we discussed in our article last week, precious metals are always sensitive to movements in the dollar, as gold and silver are bought and sold internationally in USD.
Interest Rates Hike?
Some investors fear that these positive figures in the US jobs data may spark the US Federal Reserve to begin raising interest rates. Many experts have also suggested that inflation could well exceed the goals, and strong inflation numbers can increase the possibility of early interest rate hikes.
This fear of a possible interest rates hike is likely the reason for the sharp drop in gold. Although never guaranteed, the gold price goes up when interest rates go down, and goes down when rates go up, due to rising interest rates making some other investments temporarily more attractive to investors.
Where is gold headed?
The sharp drop in price on Friday, and first thing this morning (Monday), looks to be a temporary knee-jerk reaction to the US job data as the country attempts to gain strength after the pandemic. However, the US is now reported to be averaging around 100,000 new covid infections each day, driven by the Delta variant, which could possibly impact jobs and the economy.
As stated above, gold is not a fan of prospective interest rates, and this is the reason for the recent drop. However, if inflation rises more rapidly than interest rates, which it may well do, gold will most likely gleam again. And as economies attempt to recoup some of the losses made throughout the lockdown months, evidence that inflation is rising is clear.
For now, savvy investors are taking advantage of the lower price of precious metals. And because of course although we know there is never a bad time to buy gold and silver, right now could be the perfect buying opportunity.
This blog represents one person’s opinion only. Customers should conduct their own research and take advice before making an investment. We do not offer investment advice.