One bad jobs report was all it took to send gold’s true believers rushing back in with big money. What they bet on says a lot. What it means for your savings says less than you would think.
The jobs report landed on Friday, Aug. 7, and gold bugs, investors who stay loyal to the metal through thick and thin, treated the report like a starting gun, believing gold is the safest place to hold wealth.
Payrolls had fallen by 23,000 in July, the first monthly drop since February, and they read the weak report as a reason the Fed might be less likely to raise rates. They moved fast. By day’s end, close to $180 million had gone into bets on a rebound.
That is a lot of enthusiasm for a metal that has spent months stuck below its high.
How lopsided the bet was
Investors were placing side bets on which way gold would move next, and the ones betting on a rise outnumbered the ones betting on a fall by about four to one. Bets on gold-mining companies tilted the same way, according to trading data reported by CNBC.
Almost none of the money was braced for gold to keep sliding. Nearly all of it was betting the bottom was in.
The trigger
Gold was still more than 20% below the record it set in late January. For two months it had gone nowhere. Then two things shifted. Interest rates on government bonds stopped climbing, and the dollar sank to its weakest level since mid-June.
Both can help gold. It pays no interest of its own, so when bond yields stop rising, gold looks less costly to hold. And because it is priced in dollars, a softer dollar can nudge its price up. Neither link is guaranteed, but together they eased the pressure on the metal.
The weak jobs number sharpened the case by making another rate increase look less likely, even amid speculation that new Federal Reserve Chair Kevin Warsh could raise rates instead.
The rally drew a second, unrelated source of demand as well. One analyst, Nigam Arora of the Arora Report, told CNBC that ordinary savers in China were buying heavily to get ahead of tighter rules on moving money abroad. That is a different force from a U.S. trader reacting to a payroll report, and one that would not disappear merely because the next jobs report looks better.
A bet with a deadline is not the same as owning gold
Those Friday bets were options, contracts whose payoff depends on gold rising enough within a set period. Guess the direction or the timing wrong, and the money can vanish. Gold you own outright has no expiration date. Its price can still fall, but nothing forces you to sell.
That is the whole distinction. The $180 million says a certain kind of trader believes the low is in and wants to profit from the next move up. That is a call on a price, not a decision about a portfolio, and it is the same confusion that undid investors who chased a widely shared $27,000 gold prediction.
Whether gold belongs in your retirement account, and how much, is a separate question that one busy Friday did nothing to answer.
Should you have gold in your retirement plan?
One of the best ways to protect your savings is having money in different types of investments: ideally, ones that can go up when others are going down. For example, stocks tend to do poorly when inflation and interest rates are rising and there’s political turmoil brewing. This is where gold comes in.
If you have, or would like to add, gold to your retirement portfolio, it is important you deal with a trusted gold dealer with a long, proven track record of assisting clients.
Anthem Gold Group
Whether the rebound holds will come down in part to where interest rates and the dollar go next, and how the Fed reads a job market that just went backward. Those are among the levers moving gold, not one loud Friday from its most faithful fans.
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