Gold Moves Up After a Series of Weak US Economic Numbers

Source: Forex News

earth’s
crust and is mostly mined by large global conglomerates. The barriers to entry
in this business are enormous because of the huge cost involved in mining an
ounce of gold. Discovering where there are gold deposits is a tough thing to
do. As the costs of mining gold have increased, producers have been forced to
come up with ways to boost their growth. In recent months, a number large
consolidations have happened in the industry. For example, Newmont Mining has
announced that it will acquire rival Goldcorp in a transaction valued at almost
$10 billion. Its rival, Barrick Gold has just cancelled a hostile bid. Three
years ago, Sibanye merged with Stillwater, and just last week, Australian-based
Newcrest mining announced that it was acquiring a Canadian mine for almost a
billion dollars.

The
question around the world is why people invest in gold. Warren Buffett is
famous for his hatred for gold. In 1998, he said this:

Gold gets dug out of the ground in Africa, or someplace. Then we melt
it down, dig another hole, bury it again and pay people to stand around
guarding it. It has no utility. Anyone watching from Mars would be scratching
their head.

This
way of thinking is based on the fact that gold does not have any industrial
uses. Indeed, most of the gold that is mined every year is bought and stored in
vaults by central banks and large institutions. Only a small part of the metal
is used in the manufacture of jewellery, medals, and ornaments.

The
fact that gold does not have an industrial use is the biggest reason why most
investors question its value. Another reason is that gold does not always do
what is promised. Many investors believe that gold is a good hedge against a
recession. However, historically, gold has not performed better when there was
a recession.

Another
fantastical reason is that gold is a viable metal to hold in case of an
apocalypse. Holders believe that in case that happens, the people who will come
out being successful are those who will have gold with them. They argue that
fiat currencies like the dollar and euro will be worthless when it happens.

On
the other hand you can’t eat gold (well you can but if it’s the only thing you
eat you aren’t going to stay alive for very long), you can’t hunt with gold
(maybe if you throw the ingots?) and you can’t wear gold to stay warm (you’ll
leave a fabulous looking corpse though if you do attempt it). So even post-apocalyptic
value of gold argument is debatable.

The
argument in favor and against gold tends to be emotional with both sides being
very passionate about it. It is almost impossible to change the minds of the
two sides.

In
all this, the fact that is difficult to argue against is that gold tends to
move in the opposite direction as the USD. This is because gold is usually
quoted in dollars. As such, when the USD strengthens, it usually leads to a
weaker gold.

This
week, the price of gold has risen sharply while the USD has weakened. This
started after the last week’s weak jobs numbers from the United States. The
economy added more than 20k jobs, which was lower than the 180k+ that traders
were expecting. This was followed by the weak inflation numbers released
yesterday. These numbers reinforced the Fed’s patient approach.

The
XAU/USD pair has moved to above the 1300 level. This price is slightly above
the short and medium-term moving averages. It is also the highest level since
March 4. The pair could continue moving up to test the 50% Fibonacci
Retracement level at 1315.

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