Gold Prices Sink on Jobs Report as Miners Ready to Report Earnings
Feb 6, 2023
Gold prices (/GC) had a positive reaction following the U.S. central bank’s latest policy announcement, but the good times didn’t last long for the yellow metal. The U.S. non-farm payrolls report (NFP) surprised estimates on Friday, causing dovish market bets on the Fed’s rate path to unravel. That sent bullion prices nearly 3% lower on Friday, extending a move from Thursday that wiped out early-week gains.
That was the largest weekly drop for gold prices since October, and the move has nearly trimmed its January gain when the metal rose 6.5% by more than half. Bond traders ditched Treasuries after the jobs report showed that a historically aggressive rate hike cycle failed to slow hiring. Still, the S&P 500 recorded a healthy 1.5% gain for the week. Equity traders are perhaps taking a more optimistic outlook on pushing through further rate hikes—but rate traders are taking a different view.
The economy is still losing steam, evidenced by other economic metrics like weak purchasing managers’ indexes and depressed consumer confidence. That said, Treasury yields may resume their downtrend once traders move past Friday’s report. There is an argument to make that the jobs market should slow in the coming months and that January’s report—typically subject to large seasonal adjustments—could be a one-off surprise. If that plays out, gold should resume its uptrend.
The current pullback provides a buying opportunity for those holding onto the long thesis for the yellow metal. Several events over the next week may offer swings in price action including speeches from Fed Chair Jerome Powell and other Fed members, including Williams, Barr and Waller. The U.S. December trade balance and consumer confidence numbers for February are also on tap.
Several gold miners are also slated to release quarterly earnings results, which provide inflated implied volatility metrics across various stocks. Barrick Gold Corporation (GOLD) will announce results on February 15, Agnico Eagle Mines (AEM) on February 15, and Newmont Corporation (NEM) on February 23, among others.
Implied volatility may increase as we approach those dates, especially if gold prices continue to fade lower. Strategies such as a long straddle or strangle would take advantage of increased volatility even if prices rise. That could be the case if rate markets become more confused about what the Fed intends to do. The implied volatility rank (IVR) rose for Barrick Gold on the move lower in /GC after weeks of trending lower. A further unraveling of that prior trend would bode well for bullish volatility bets.
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