Gold Stumbles On US Claims But Recovers on Ukraine Turmoil

Gold has enjoyed a safe haven status this year. Last year losses were mostly driven by lower safe haven demand as the geo political issues where short lived and for the most part in the periphery economies such as Turkey. This year the conflict in Ukraine has deep implications for Europe’s supply of energy. The metal reached the 1,372 price point on geopolitical turmoil recovering from earlier losses in the day after the positive US employment numbers decreased the bullish trend.

Earlier today there were mixed reports about the global recovery. Chinese Industrial Production came in lower than expected. The figures did not take into account January which suffers from “Lunar New Year Holiday” distortion and still came under the previous reading. The United States had a 3 month low unemployment claims number which boosted the USD. 315,000 jobless claims were filed this week. The US Federal Reserve is trying to decouple the pace of tapering and rate hike expectations to the recovery of the job market. Yellen has explained that monetary policy should be linked to a single number that could be flawed like the unemployment rate. It is unclear how successful the Fed has been with moving the market’s perception of employment as the most important indicator.

Inflation concerns were largely on the background in 2013. Record low inflation in the major economies to the point of deflation had decreased the appetite in the yellow metal as an inflation hedge. With the Reserve Bank of New Zealand hiking rates yesterday that could change. The first major central bank to raise rates since 2011. This along the continued tapering from the Fed, even though the US central bank argues they are not linked, has boosted the expectation of a imminent US rate hike.

Gold lost over 20 percent in 2013 and this year started well for the metal. China and India’s demand for the commodity have decreased. Speculative demand to hedge inflation and geopolitical uncertainty have increased following the RBNZ hike and the improving US job situation.

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza