Gold recorded its first loss in four sessions yesterday and the Direxion Shares Exchange Traded Fund Trust was down because of the weakness in the bullion. Gold had been mostly up in the last two weeks after Britain voted to leave the EU in its historic Brexit vote. From last Friday and through the first three sessions of this week, the yellow metal was on a strong upward trend because central banks were dropping hints that could boost the prospects of the bullion.
For one, U.S. Federal Reserve took a dovish stance in the minutes of its June policy meeting. The Fed hinted that it might keep interest rates lower – low interest rates is a perfect breeding ground for bullish sentiments for the bullion. More so, the ECB and Bank of England have also dropped hints about the possibility of starting new stimulus packages. The yellow metal tanked and gold for August delivery closed with a 0.5% loss to settle at $1,362.10 an ounce on Thursday. The ETF was down 9.68% to end the session at $152.15 on Thursday.
Why did gold lose its bullish steam?
The prices of the bullion and Direxion Shares Exchange Traded Fund Trust skyrocketed last month after news broke that U.S employers added the lowest number of jobs in May. Investors have been having an unconscious expectation that the jobs number in June will also be unimpressive because the economic fundamentals of the nation haven’t changed.
However, jobs data released by the ADP showed that private sector employment had improved in June. The ADP reported that the private sector added 172,000 jobs in May to beat the consensus’ economic expectation of 150,000 jobs. An increase in the number of jobs added in June suggests that the weakness in jobs data for May was an aberration and that normalcy has returned to the jobs market.
Gains in the jobs market often suggests that the economy is recovering faster; interestingly, investors have fewer reasons to buy gold when the economy is healthy. Economists at Action Economics observe that the ADP report “sets up well for Friday’s employment report and suggests a gain of at least 200K.” Investors can expect the bullion to fall lower today if the June jobs data from the Bureau of Labor Statistics show significant improvement in job gains.
Gartman says Gold is the currency for the ages
A commentary written by Dennis Gartman, founder and editor of “The Gartman Letter” reveals his bullishness on gold and Direxion Shares Exchange Traded Fund Trust for the long term. Gartman says he brings the voice of reason to the bullish discourse on the yellow metal. In his words “we are not “gold bugs” here at The Gartman Letter. We do not believe that Western culture is doomed to fail.”
He however noted that his bullishness on gold is firmly entrenched in the fundamentals of the yellow metal as a currency on par (or better than) the dollar, euro or pounds. He says, “Gold is the currency for the ages, having been around for centuries and having always been a metal that civilizations are enamored with.”
He also noted that the value of gold is hidden in plain sight and that it takes simple childlike understanding to uncover the worth of the yellow metal. He says, “we tend to view one currency in terms of others; that is, just as the euro is “priced” in terms of the dollar or yen… gold can be and should be “priced” according to how many dollars are needed to buy one ounce of gold, or euros, yen, pounds, etc.”