Gold prices are trading at six-week highs this morning in New York. Precious metals prices are all higher, extending big gains seen on Friday. Safe haven demand is supporting gold, as Saudi Arabia, Egypt and the UAE have all suddenly cut off all contact with the country of Qatar.
Friday's horrible nonfarm payrolls report caught the markets flat-footed, a day after ADP reported private sector payrolls gains at a huge 253,000 jobs. The more-inclusive NFP showed that only 138,000 new jobs in total were created in May, compared to estimates of 185,000.
The resulting reaction by the markets seemed to not make sense at all. Bond demand surged, with the yield on the 10-year Treasury note falling to a seven month low of 2.15%. At the same time, stocks rose to hit new records, the dollar slumped as the euro hit a nine-month high, and gold hit a six week high.
These moves happened due to widely divergent views over what the far weaker payrolls report means for the immediate future. Stocks closed at record highs for the second day in a row Friday, as traders believe that far weaker job growth will force President Trump and Congress to come together and quickly get a stimulus bill passed. Bond traders see the horrible jobs numbers as something that will force the Fed to raise rates only one more time this year. The prospect of "one more and done" hikes by the Fed saw the DXY dollar index fall from 97.2 to 96.8 immediately after the nonfarm payrolls numbers were released.
The combination of stronger bonds + weaker dollar + safe haven demand set up a very bullish environment for gold.
The DXY dollar spot index immediately plummeted from 97.2 to seven-month low of 96.8. The euro used the dollar's woes to springboard to nine-month high against the dollar, while the yen also strengthened. The DXY index is at -5.42% year to date, while the euro and yen are up versus the dollar so far this year by 7.1% and 5.5%, respectively
The July gold futures contract hit a six-week high of $1,280.20 an ounce on the news, settling $10.10 higher for the day, and 1% higher for the week.This marks the fourth week in a row that gold prices have climbed. July silver futures closed 24 cents higher at $17.53 an ounce, while July platinum contracts gained $24 to settle at $953 an ounce. Platinum, which has seen weakness over the last couple of weeks, continues to strengthen, end Friday $11 higher at $834 an ounce.
Year-to-date, palladium is still the best performing precious metal on the futures market. It has gained $154.40 an ounce for a 22.57% gain since Jan 2nd.
In the precious metals spot market, every one of the Big Four metals closed Friday with at least 1% gains. Spot gold ended the week at $1,279.00 an ounce, up $13.60 (1.07%) on the day. Spot silver gained a quarter to close 1.48% higher at $17.52 an ounce. Spot platinum was Friday's big winner, rising 2.58% to close $24 higher $954 an ounce. Spot palladium ended $13 higher for a 1.58% gain at $827 an ounce.
The petroleum market had another very bad day on Friday. West Texas Intermediate (WTI) futures for July lost 70 cents (1.5%) to settle at $47.66 a barrel. August Brent contracts fell 68 cents to $49.95 a barrel.
President Trump's decision to pull the US out of the international climate change agreement, coupled with his goal of allowing more drilling on Federal land in the West, raised the specter of even greater crude production in the US. This could completely negate the effects of the OPEC production cut agreement, growing the global oil glut and send prices back under $40 a barrel.
Adding to the negative sentiment in the oil market, Baker Hughes reported Friday that 11 more oil rigs began operations last week, for a total of 733 on-shore oil rigs active. In the last 52 weeks, the number of active oil rigs has more than doubled, growing 762 rigs, from 325 to 733.
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