Jobless Claims Send Gold Spiraling Down

Friday, April 15, 2016

Gold is a very interesting commodity, whose price has seen quite a bit of movement over the past several months. In fact during this year, there have been few assets that have been anywhere near as interesting to watch as gold has been. Moreover, things are getting even more interesting. At the moment, the gold price is falling thanks to US jobs data. Today, we'll talk about the data that was released, why it's important for gold investors should take heed…and what we can expect to see from gold in the short-term as a result.

US Jobless Claims Fall... In A Big Way!

One of the most important factors to watch when determining economic strength is jobs and jobless claims. After all, when an economy is doing well, consumers and businesses buy more products. This requires manpower to fulfill the orders. As such when jobless claims are low, it indicates that the economy is doing incredibly well. Specifically, US jobless claims are falling in a big way. In fact, US jobless claims have fallen to a 42-year low, meaning that employers are upbeat about the economy. In the week that ended April 9th, jobless claims dropped by 13,000, bringing the total number to about 253,000. This is the lowest level of jobless claims that the US has seen since November of 1973.

Why This Is Important For Gold Investors

Looking from the outside in, it may not seem as though jobless claims are an important figure for gold investors to watch. However, that's not the case at all. The reality is that gold is considered to be a safe haven investment. This means that demand for the precious metal is largely dependent on both economic conditions as well as market conditions. When negative economic or market conditions are dire, investors start to look to gold as a way to keep their money safe. Ultimately, this increases demand and causes spikes in price. However, when positive economic and market news is released, investors tend to sell gold and look to the market to make their money grow. This leads to declines in gold demand, and ultimately price.

On top of that, gold is valued using the US dollar. As a result, when the USD heads upward, gold becomes more expensive in other nations, leading to declines in demand. Adversely, when the USD is heading downward, gold is less expensive in other countries leading to increased demand. When US economic conditions are positive, we can expect an increase in the value of the USD.

Considering these facts, the information that was released with regard to jobless claims is overwhelmingly positive economically. However, for gold investors, this is bad news as it will likely reduce gold demand.

What We Can Expect To See From Gold Moving Forward

Moving forward, I have a relatively mixed opinion of what we can expect to see from the value of gold. In the short-term, gold is likely to continue heading downward in value. Understandably, solid economic data out of the US is bad news for the metal. However, in the long run, I maintain a relatively bullish opinion of gold. The reality is that at the moment, market and economic conditions around the globe remain unfavorable. This in conjunction with poor movement in oil and geopolitical strain from ISIS will likely help to push the gold price further up throughout the year. 

Joshua Rodriguez

Joshua Rodriguez is an avid financial professional. He is the owner and founder of CNA Finance, a partner at Modest Money, and a writer for US News & World Report, Investing.com, and more! Joshua takes a strong fundamental approach to market analysis and enjoys offering his take on what we can expect moving forward. You can reach Joshua at cnafinancehelp@gmail.com.