Gold Rebounds After Jobs Data Sparks Friday Selloff

Gold prices retreated on Friday (November 6) coming under pressure from a stronger US dollar and rising Treasury yields, after new US jobs data showed that employers added 165,000 jobs in October.

Spot gold was trading around US$4,063 by 2:55 p.m. EST. The decline followed a strong rally earlier in the week with Democrats gaining control of both the Senate and House of Representatives through the US midterm elections.

Despite the pullback, gold climbed on Wednesday (November 4), marking its biggest daily gain since August. Prices continued higher on Thursday (November 5), reaching US$4,146.63 per ounce, their highest level since October 20.

The report also showed a fall in unemployment rate to 4.1 percent from 4.2 percent.

While stronger dollar and rising Treasury yields pressured gold by making it more expensive for overseas buyers and less attractive to investors, expectations of higher US interest rates for longer added to the downward pressure.

According to Jeff Clark, founder of The Gold Advisor, gold could have significant upside ahead if its current bull market continues to follow the trajectory of the 1976-1980 rally.

Speaking with the Investing News Network at this week’s Gold Advisor Network Summit, Clark said gold's current price performance has a 93 percent correlation with the earlier bull market.

Although he cautioned that US$10,000 gold isn't a guaranteed outcome, he believes the historical comparison highlights the metal's potential to more than double from current levels.

Clark said rising interest rates don't always mean lower gold prices. His analysis of rate hiking cycles dating back to the 1970s shows that gold has advanced during several periods of monetary tightening, including the three most recent cycles. In two of those instances, gold initially declined before recovering.

Additionally, he has been actively buying gold stocks since June or July, taking advantage of lower prices to identify value rather than trying to time the market bottom.

He remains bullish on the sector over the next two to three years, expecting higher precious metals prices to provide further upside for mining equities.

“The Fed hiked and gold crashed big time, right? So a lot of that, the December rate hike, is probably built into that price. Then all of a sudden, we had the election results, and everybody forgot about the Fed and the gold price and silver price jumped significantly,” he said.

“What I try to encourage people to do is not look at just one factor that can impact the price. We've already seen that just in the last two weeks or less that there were different factors impacting the price, but the bottom line for me is, in the big picture, we're going to go a lot higher. That's why I'm investing.”

Jeff Valks, senior analyst at The Gold Advisor, shared a similar positive outlook for gold, identifying US$4,000 per ounce as an important support level. He also emphasized that investors should look beyond short-term price movements and focus on junior miners' exploration results, drill grades and progress toward production.

“The spot price is going to be bouncing around and doing its thing based on headwinds, based on the Fed, based on elections, which we just saw come and go,” said Valks.

“What we look for in the juniors is: Are you doing the work? Are you putting the drills in the ground? Are the soil samples coming up nice? Are the drill bits showing you good grade? That's what we care about. At the end of the day, we are behind in our mining necessities.”

The yellow metal rallied in pre-trading hours Monday (November 9) rising to US$4,119 as of 8:12 a.m. EST.

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Securities Disclosure: I, Aastha Sethi, hold no direct investment interest in any company mentioned in this article.