Gold futures gave up earlier gains to turn lower on Thursday, pressured as the U.S. dollar strengthened in the wake of a surge in weekly U.S. jobless claims, which underlined the rapid deterioration in the economy from the COVID-19 pandemic.
The U.S. Labor Department on Thursday reported that 5.25 million workers who have lost their jobs applied for unemployment benefits last week, driving the number of coronavirus-related layoffs above 21 million in just one month.
“U.S. economic data covering the past few weeks is showing just how much damage has been inflicted on U.S. businesses,” said Jim Wyckoff, senior analyst at Kitco.com, in a daily note.
Also on Thursday, U.S. data showed that the Philadelphia Fed manufacturing index in April dropped to -56.6, the lowest reading since July 1980 and builders started construction on new homes at a pace of 1.22 million in March—a 22% decline from a revised 1.56 million in February.
Downbeat data have reinforced the perception that the economy is weakening at an unprecedented clip, setting the state stage for a slow and long recovery, referred to as U-shaped. Against that backdrop, investors looked to the U.S. dollar as a haven, lifting the ICE U.S. Dollar Index DXY, +0.74% up by 0.8% in Thursday dealings.
“The U.S. dollar has been attracting safe haven investment across the globe,” said James Hatzigiannis, chief market strategist at Ploutus Capital Advisors. “The increase of strength in the U.S. dollar drives gold prices down.”
“In addition, the heightened amounts of volatility in the markets has caused an increase in demand of cash and liquidity (to cover margin and readjust portfolios) for investors and that hurts gold,” he told MarketWatch.
Gold for June delivery GCM20, -0.40% on Comex fell by $7.30, or 0.4%, to $1,732.90 an ounce after touching an earlier high of $1,768. Prices saw a 1.6% decline on Wednesday, which brought the metal to its lowest finish for most-active contract since April 8 and halted a four-session string of gains, according to FactSet data.
Elsewhere in Comex, the most-active May contract for silver SIK20, +0.38% picked up 7.5 cents, or 0.5%, at $15.58 an ounce, after sinking 3.9% in the session before. May copper HGK20, -0.04% shed 0.07% to $2.2945 a pound.
July platinum PLN20, -1.26% declined by 1.1% to $795.40 an ounce and June palladium PAM20, -2.13% lost 2.1% to $2,107.60 an ounce.
Gold has mostly held its ground above a significant level at $1,700 with commodity investors expecting the precious metal’s price to remain buoyant amid growing efforts by global central banks and governments world-wide to avert a deep global recession.
“There are a lot of things to like about gold right now,” said Hatzigiannis, including “the combination of central banks claiming they are all in on whatever monetary policy moves are called for, and a decrease in production amid mining operation shutdowns tied to COVID-19.
Near limitless monetary stimulus by the Federal Reserve to alleviate liquidity and credit pressures in the financial markets and trillions of dollars of support from the federal government to help businesses and workers also are viewed as an environment that will be supportive of gold buying.
Hatzigiannis said he’s bullish on gold in the long term, with prices potentially testing the $1,800 level in the next month or so, but gold may be “coming close to over-bought levels” in the short term.
Meanwhile, assets considered risky like stocks have gained some altitude on the prospects of reopening the U.S. economy soon. U.S. benchmark stock indexes traded on a mixed note in Thursday dealings, but held onto a gain month to date.
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