Friday June 03, 2016 10:07
A weaker-than-expected May U.S. jobs report bodes well for gold but this week’s meeting of the European Central Bank also has implications for the yellow metal, says Mitsubishi. U.S. nonfarm payrolls last month grew by only 38,000 when economists collectively expected a 160,000 gain, cooling any expectations for a Federal Reserve rate hike. “This nail in the coffin of a near-term rise in rates should mean the yield environment remains favorable for gold and precious metals over the medium term,” Mitsubishi says. “The dollar and Treasury yields have slumped, and gold has gained over 2% in today’s trading.” Meanwhile, Mitsubishi says comments out of the European Central Bank On Thursday “have wider implications for gold.” The central bank’s latest projections show inflation will remain well below the 2% target -- at 1.3% in 2017 and 1.6% in 2018. This means the ECB may be forced to extend its “whatever it takes” monetary policy to lift inflation in the next two years, Mitsubishi says, including potentially moving the deposit facility rate further into negative territory and also making the main refinancing rate negative. “While this would weaken the euro against the dollar and therefore present a headwind to dollar-denominated gold, we believe on the whole this would be broadly gold positive as institutional investors search for a non-yielding asset as an alternative to negative yielding bonds, and also more generally as gold becomes a go-to safe haven asset amid an effective admission that all other stimulus measures have failed,” Mitsubishi says. As of 12:18 p.m. EDT, Comex August gold was $29.70 higher to $1,242.30 an ounce.
By Allen Sykora of Kitco News; firstname.lastname@example.org