The decline in initial applications may help reassure markets that the workforce is simply reverting to its pre-pandemic trend rather than rapidly deteriorating. That was the consensus until last week, when the jobs report showed employers substantially scaled back hiring in July and the unemployment rate rose for a fourth month, triggering a key recession indicator.
Gold surge by 1.8% to 2426.5 US$/OZ, after the lower than expected US initial jobless claims. This further highlights the market's concerns about a potential recession, reinforcing the notion that the prevailing theme is the uncertainty and fear of a US recession.
You may wonder, why did gold prices drop on "Black Monday"? Why is there an outflow of money from the stock market that doesn’t flow into the gold market?
In my opinion, several factors contributed to the events of "Black Monday," primarily issues related to the carry trade, concerns about a US recession, and the possibility of escalating conflicts between Russia and Ukraine, as well as in the Middle East, particularly involving Israel. The drop in gold prices on Monday is actually because gold, being relatively stable, is often liquidated by those who need cash, especially when stocks have dropped dramatically.
The outflow of money from the stock market that doesn’t flow into the gold market has actually flows into the Bonds market as obviouly can be proven by the bond yields drop a lot.
The Malaysian Ringgit surged to around RM4.40/USD, the highest level since 2015, thanks to rate hikes from Japan and liquidation by carry trade traders. For Malaysians, this allows us to buy gold at a cheaper price since gold is quoted in USD.
Nonetheless, gold prices are still up over 17% year-to-date and have not fallen below the support line we identified last week at around 2,294.86 US$/OZ. A triangle pattern has also formed on the daily chart, and we should be able to discern the trend or direction of gold prices in the coming days.
Next week, there will be two important data releases: the Producer Price Index (PPI) on Tuesday and the Consumer Price Index (CPI) on Thursday. Growth in both the PPI and CPI would be favorable in the current context, as slight increases in these price indexes would indicate that the economy is still expanding, with companies, sellers, and suppliers able to raise their product prices while consumers are willing and able to afford them. Positive numbers in both data sets would likely restore market confidence, alleviate recession fears, and potentially revive the bullish market, possibly pushing gold prices to a new high.
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