The improving job numbers are fueling Federal Reserve rate hike speculation and dragging on the gold bullion and miner-related exchange traded funds.
With the SPDR Gold Shares (NYSEArca: GLD), the world’s largest ETF backed by physical holdings of gold, down 2.7% and broad equities markets off over 1% Friday, gold miners are feeling the pain doubled. The Market Vectors Gold Miners ETF (NYSEArca: GDX) plunged 7.4% Friday while the Market Vectors Junior Gold Miners ETF (NYSEArca: GDXJ) plummeted 7.2%.
After the government revealed American employers added more jobs than expected and the unemployment rate dipped to its lowest in seven years, the improved economic outlook triggered speculation that the Fed would push ahead with rate hikes soon, diminishing investment demand for gold as a safe haven and inflation hedge, reports Debarati Roy for Bloomberg.
COMEX gold futures fell 2.7% to $1,164.5 per ounce.
“People don’t see much need for safe-haven assets,” Kevin Chen, the chief investment officer of Three Mountain Capital Management LP, said in the article. “The jobs report is another indication that the economy is doing very well.”
Moreover, putting further pressure on gold, the U.S. dollar also strengthened on the job growth. For instance, the PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP) rose 1.2% Friday. A stronger USD makes it costlier for foreign traders to acquire USD-denominated bullion.
The sudden drop in gold and miners may have caught traders off guard as asset flows revealed that leveraged and inverse gold ETF traders have been dumping bearish bets over the past month, according to Direxion data.
Specifically, the Direxion Daily Gold Miners Bear 3X Shares (NYSEArca: DUST) experienced $779,000 in outflows and Direxion Daily Junior Gold Miners Index Bear 3X Shares (NYSEArca: JDST) saw $951,000 in outflows over the past 30-days. However, the two leveraged inverse trades were among the best performing ETFs Friday, with DUST jumping 22.2% and JDST surging 21.9%.
Market Vectors Gold Miners ETF
For more information on gold stocks, visit our gold miners category.
Tom Lydon’s clients own shares of GLD.