Gold investors have a started to see a return to bullish fundamentals after the August jobs data indicated a slowdown in the U.S. economic recovery. Traders have started to book bigger gains with the Direxion Shares Exchange Traded Fund Trust and the ETF was up a massive 14.34% to close at $25.03 on Tuesday. The bullion also enjoyed bullish tailwinds in Tuesday’s session and U.S. gold for December delivery was up 2.1% to settle at $1,354 an ounce.
The reason behind the renewed bullish outlook on the yellow metal is two-fold. In the first part, the weak August jobs report indicates that the economy is far from full recovery; hence, investors are seeking stability and refuge in the bullion. In the second part, the search for stability in the yellow metal has led to an increase in demand for the yellow metal.
Gold demand hits a 4-year high in the UK
Jillian Ambrose of The Telegraph reports that private investor demand for gold in the UK has soared to touch a 4-year high based on data on net purchases on Bullion Vault trading platform. It was reported that total gold holdings at BullionVault has increased by half a ton to 35.7 tons. More so, the markets are still grappling with the effects of the Brexit vote and the number of investors willing to exit their bullion positions has dropped to 49% from 53%.
The more interesting thing about the increased demand for gold in the UK is that the buyers fall across a wide range of diverse background and demographics. The traditionally conservative investors who consider gold and Direxion Shares Exchange Traded Fund Trust as a good nest egg for retirement are buying gold. More so, people on the low end of the financial strata are also investing in gold even with bad credit.
BullionVault has revealed that its Gold Investor Index has touched a new 3-year high of 56.0 to mark the highest point since April 2013. Adrian Ash, head of research at BullionVault observes that “private investors continue to grow their gold holdings against a trend of both rising prices and rising financial risks… Last time net gold investing demand was this strong, prices were retreating hard from the late 2012 rally.”
ISM Non-Mfg data gives investors more reasons to be bullion on the bullion
On Tuesday, the Institute of Supply Management delivered its ISM non-mfg index data for August and the dataset suggests that the economy has lost its bullish vibes. The ISM notes that ISM non-mfg data for August was down to 51.4% down from 55.5% in July. The weakness in the August data marks the lowest performance since February 2010.
Naeem Aslam, chief market analyst at ThinkMarkets observes that “When you see the ISM nonmanufacturing number dropping like this, it shakes the floor on which traders are building the hopes that the Fed could increase the interest rate… A few more readings like this, and you can say goodbye to interest rate hike.”
The weakness in the ISM non-mfg data coupled with the poor August jobs number suggests that the U.S. Federal Reserve won’t raise interest rates anytime soon. Hence, the bullish prospects of the bullion and Direxion Shares Exchange Traded Fund Trust will shine brighter in the next couple of weeks. More so, the weak ISM non-mfg data has forced the greenback lower and the ICE U.S. dollar index, which tracks the greenback against six currencies dropped by 1.1% after the news broke.