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Local Gold Stocks Set to Pop as Price Keeps Running

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2023-04-05

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Watch the share of ASX listed gold stocks take a run higher Wednesday after another strong day for the precious metal on global markets.

Gold futures closed well above $US2,000 an ounce on Tuesday as the US dollar and Treasury bond yields fell on mixed news including clearer signs the US economy is weakening with a fall in US job openings and more worries about the impact of oil prices remaining above $US80 a barrel.

Comex gold futures in New York were up nearly $US40 an ounce (1.88%) on Tuesday in regular and electronic trading, ending at $US2,038.10 an ounce ahead of trading in Asia starting.

Traders can now see a new high approaching - the previous high in 2020 is around $US40 an ounce away.

Gold’s gains, the fall in bond yields and the weaker economic news had no impact on equities as Wall Street’s three main measures, the Dow, S&P 500 and Nasdaq all fell and overnight trading on the ASX’s futures market showed a small blob of red ink ahead of the resumption of dealings this morning.

The S&P 500 fell 23.91 points, or 0.6%, to 4,100.60, the Dow lost 198.77 points, or 0.6% to 33,402.38 and the Nasdaq eased 63.13 points, or 0.5% to 12,126.33.

But gold’s gains will see prices of local miners perk up again.

While gold analysts see the $US2,050 price as a resistance level for the metal, the changing outlook for the US economy, the dollar and bonds could see that mark overcome.

OANDA senior market analyst Edward Moya wrote in a note Tuesday that Gold is now looking to approach record highs, and it might need more evidence of a slowing economy before that happens.

"Gold investors now need to see further evidence that the service sector part of the economy is slowing, and that could help the big rally continue," he said.

"Gold has its eye on record highs and that it might not take much to get there. If recession expectations continue to grow for the second half of the year, gold should have a path toward the $US2,100 level,” he wrote.

Gold was not the only precious metal to rally. Comex silver May futures were up nearly 5% on the day, trading at $US5.18 an ounce, and platinum was up 3.46% on the day, with April futures last trading at $US1,021 an ounce.

Friday’s jobs data for March will be the next test, though that release will be on good Friday and most markets will be closed.

But markets in China and Japan will be open for traders to react to the data - 235,000 to 240,000 new jobs seems to be the best forecast range, down from more than 300,000 in February and over half a million in January.

A slide in the value of the US dollar and weakening bond yields helped push gold higher as traders accommodated the latest economic news from the US.

The US dollar fell against the euro but not the Aussie dollar which remained well under 68 US cents in the wake of the Reserve Bank’s decision to leave the cash rate unchanged at 3.6%.

The surge in oil prices this week after a surprise output cut by OPEC+ has helped gold’s 'safe haven’ status.

But that prospect is starting to look a little more distant as US job openings fell to a near two-year low in February - just under 10 million. US factory orders also slipped for a second month in February after January’s big 2.1% drop.

Analysts at Citi are forecasting gold prices to remain strong in the short-term with an upside of $US2,300 on the back of several macro drivers, including disinflationary pressures and increased likelihood of a recession.

The 9.9 million US job openings in February was the lowest since May 2021 and a sign that the job market is starting to cool, which would be welcome news for the Federal Reserve and consumers.

Vacancies fell from 10.6 million in January, the Labor Department said Tuesday, notably in healthcare and in professional services.

Until 2021, monthly job openings never topped 10 million in the Labor Department’s Job monthly Openings and Labor Turnover Survey (JOLTS). But they held above that threshold for 20 straight months — until February.

Despite the drop, the number of layoffs was lower in February (despite a reported 157,000 tech workers losing their jobs and tens of thousands of people in media and entertainment companies), and more Americans quit their jobs — a sign of confidence they can find better pay or working conditions elsewhere.

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