The price of gold experienced a drop below the support level established around $1,700. All in all, in a broader macroeconomic picture, this pullback may seem momentary.
Gold closed the week at $1,685.53. The price of the precious metal touched its lowest low in the last four weeks, falling to $1,677.93. It translates to a decrease of $59 from its weekly peak this June 2 of $1,744.58.
The US announced an increase in its unemployment statistics
This decline comes after the United States Bureau of Labor Statistics released a net growth of 2.5 million jobs in the country during May. During the first eleven weeks of quarantines, 42 million people had lost their jobs.
The numbers fueled risk appetite among investors. Global equity markets hit their highest highs in the past three months, according to the MSCI index. Meanwhile, government bond prices also fell, boosting interest rates.
However, the political and macroeconomic outlook is still not favorable. Protests and riots continue to spread across the United States. Analogically, Hong Kong people fill the streets against the Chinese government. The English chief negotiator, David Frost, negotiated post-Brexit trade agreements between the United Kingdom and the European Union without significant areas of progress. New military actions are taking place in Libya, and there was a diesel spill of around 21,000 cubic meters in the Russian Arctic that it is still trying to contain.
There will be a correction in prices of gold
The bigger picture does not seem very encouraging. Due to this fact, the collapse in the price of gold as a refuge asset is uncertain.
Bart Melek, the head of global strategy at TD Securities, stated that stocks would surge only briefly. At some point, there will be a correction.
The reality is that we still have significant unemployment. The economy will be massively below its potential, which means that central banks and governments will have to continue adding stimuli. Melek suspects that central banks will allow inflation to move above 2%. At the same time, a massive amount of debt is being produced.
Melek sees the price of gold bouncing off this current low next week. He considers these big falls to be significant buying opportunities. There is strong support for around $1,660-70. As long as things keep going and conditions stabilize, big job surprises will not happen. It will be challenging to reach full potential, she stated.