Investors Not Believing Economic Data, Still Prefer Gold

(March 2, 2016 - by Neils Christensen, Kitco News)

(Kitco News) - Investors could be a little skeptical of the recent slew of better-than-expected U.S. economic data, which is helping gold prices in the short term, according to some analysts.

Wednesday, private payrolls processor ADP said that 214,000 private-sector jobs were created in February, well above the forecast of 185,000 jobs. However, gold futures are testing near-term resistance, hovering near session highs. As of 10:51 a.m. EST, April Comex gold futures were trading at $1,240. an ounce, up 0.75% on the day.

Bill Baruch, senior commodity analyst at iiTrader, said that although the data has been better than expected, it hasn’t been great. He noted that Tuesday’s manufacturing data, despite beating expectations, still highlighted that the sector is in contraction territory for the fourth month in a row.

“If you look at it, the data hasn’t been great, just better than expected. But the bar is set pretty low,” he said. “I think there is some disbelief in the data, which could be supporting gold.”

Baruch added that for economic data, the real test could come on Thursday when the Institute of Supply Management releases is service-sector Purchasing Managers Index.

“The service sector is sort of the last pillar of strength in the U.S. economy and if that continues to fall, then people will start to get really nervous; equities will fall and that will be good for gold,” he said.

Ole Hansen, head of commodity strategy at Saxo Bank, said that gold’s impressive rally since the start of the year is definitely helping investors shake off positive economic news, which is negative for the yellow metal.

He added that buyers are waiting to get into the market and buying on dips. Although the economic data is not as bad as expected, Hansen also said that bond yields are still in negative territory, which makes gold an attractive investment.

Georgette Boele, coordinator of foreign exchange and precious metals strategy at ABN Amro, said it has been “fascinating” how gold has been able to hold up, despite strong equity markets, a stronger U.S. dollar and growing expectations that the Federal Reserve could still hike rates later in the year.

She added in a report published Wednesday that falling U.S. Treasury yields could be helping gold shake off some of the other negative factors.

“Lower U.S. Treasury yields are increasing the attractiveness of gold and other precious metals as gold doesn’t pay a coupon or dividend,” she said.

But it could also be the price itself, which is up almost 17% since the start of the year.

“Gold priced in U.S. dollars is at relatively attractive levels compared to other safe-haven assets and has more upside potential in an environment of low or negative (real) yields. Investors have started to move back into gold. As a result, every slight weakening in prices is only temporary,’ said Boele.