Direxion Shares Exchange Traded Fund Trust might be starting out the new week on a quiet note after gold ended the last trading week on a weak footing. This morning, the yellow metal is weak in European markets because investors could not find enough reasons to place bullish bets on the bullion for the new week. The main reason behind the weakness in the yellow metal was the April data on U.S. employment numbers that was released last Friday.
It was reported that U.S. employers added 160,000 jobs in April and that the unemployment rate held steady at 5%. The U.S. jobs number wasn’t particularly impressive but it shows steady growth in the payroll data. Michael Gapen, chief United States economist at Barclays noted that “It’s a soft report but it doesn’t portend a turn in the labor market… I’d be more concerned if there were weakness across the board, but there wasn’t.”
Here’s why gold is weak today
The decent jobs data was enough to spook gold bulls and it wasn’t long before the bears started calling the shots in the market. Spot gold was down 1% to $1,275.81 an ounce and bullion for June delivery was down almost 1% to $1,278. The fact that the yellow metal was unable to discard the weakness over the weekend is already forcing gold-backed ETFs and derivatives lower today. As at 11:17 AM (EST) the Direxion Shares Exchange Traded Fund Trust was down 17.09% to $89.31.
It is also worthy of note that the U.S. dollar has been on a rebound and a rising greenback almost always weakens the bullion. The dollar index, which crashed to a 16-month low last week has started to edge up with 0.1% gains this morning. ABN Amro analyst Georgette Boele observed that “The dollar has started to recover somewhat… The reason why the dollar was not aggressively sold off after the data is also making investors somewhat nervous about the gold positioning.”
There still hope ahead
The April jobs data could end up having a double-edged effect on the yellow metal and Direxion Shares Exchange Traded Fund Trust going forward. The steadying in the jobs data is the reason behind the weakness in gold but the weak jobs number could also cause the fed to raise interest rates just once this year instead of twice as previously anticipated. In April, the U.S. economy gained the lowest number jobs in seven months and Daniel Hynes at ANZ notes that “Gold held on to a lot of the gains despite the strengthening dollar – it seems to be well supported.”
The current weakness in the bullion however doesn’t look serious and it might just be a momentary correction as the yellow metal consolidates previous gains while investors take profits off the table. For instance, analysts at Capital Economics Research predicted that a gold rebound was likely even though the bullion is currently weak. The analyst noted that “We still expect the price of gold to rise further, underpinned by demand for inflation hedges as inflationary pressures continue to build.”