(By Mani) Gold crossed the psychological $1,600 mark Friday despite a favorable jobs data that showed employers in America hired more workers than expected last month despite an unexpected rise in the unemployment rate.
Meanwhile, the US employment results would feed into market expectations for Jackson Hole and the Sept. 13 FOMC meeting.
The yellow metal's recent upside came after it moved in tandem with the euro yesterday, dragging the entire precious complex along for the ride. ECB President Draghi's comments during the press conference were generally in line with expectations, but the lack of firm details still managed to disappoint some market participants who were expecting more concrete direction.
Gold's dip to the $1587.88 low was not all that surprising given its strong, positive relationship with the euro. The 20-day rolling correlation remains elevated, at 0.61 as of yesterday. However, at the same time, gold's struggle to get its $1600+ price tag back suggests that, despite the recent friendlier investor attitude, there are still many out there who need more convincing.
While this week's price behavior highlights that investors are rather quick to get out, it's important to remember that gold is back to levels it traded at just last week.
"In our view, our more positive outlook – as reflected in our one and three month forecasts – still stands, especially with the potential for central banks to act remaining elevated," UBS strategist Edel Tully said in a client note.
Gold is now facing a test. Sentiment had clearly improved towards gold prior to this week's central bank meetings, and given the growing friendliness to gold of late that the dips will prove to be relatively more shallow, with investors more inclined than before to pick up gold at and around $1600.
"Near-term resistance is at $1618.57, but the more important checkpoint would be the resistance sitting around $1631.60 which gold has yet to overcome – this is an even bigger test of investors' increasingly more favorable attitude towards the yellow metal," Tully added.
In the week to August 2, gold ETF holdings advanced by 0.24 million ounces (moz) to 81.21moz. Investors added to their holdings in ZKB fund to the tune of 72.91 thousand ounces (koz), while NewGold (JSE) and Source funds were both up by 50koz.
Meanwhile, holdings in iShares were also higher by 28.95koz. ETFS (LSE) and DB Physical funds increased by 22.85koz and 10.97koz respectively. In contrast, investors scaled back their holdings in SPDR fund by 19.41koz. Total gold ETF holdings are up 0.03moz, month-to-date.
"Gold needs to build on its own momentum, but first it needs to see evidence of those buyers emerging at the lower levels," Tully said.