Gold gains safe-haven luster as jobless claims touch record

The latest data showed US initial jobless claims touched a record 6.64 million, painting a grim picture of the weakness in the country’s labor market. Analysts expected a figure of 3.5 million. The latest jump in jobless claims came on the heels of a 3.8 million rise in the previous week.

“These data certainly suggest that the unemployment rate will peak higher than we previously assumed in the near-term, with a rise above 10% now likely in the coming months,” said Andrew Grantham, senior economist at CIBC.

Gold futures have reacted bullishly to the jobs report. At 12:20 pm ET, the yellow metal’s June contract was trading at $1637.30, up by $46.10, or 2.8%.

Gold appears to have shrugged off demand worries due to falling demand from central banks and the jewelry industry. Russia has suspended its bullion purchases with effect from April 1.

Gold a haven amidst sloshing liquidity?

Instead, the market is perhaps bidding up gold due to further economic turmoil from the escalating coronavirus pandemic. The jobless numbers could be a forewarning of impending crises that may require further governmental and Fed intervention.

Gold is already expected to benefit from the tsunami of liquidity (read: helicopter money) unleashed by the Fed’s QE and the CARES Act.

“The longer this thing drags out, the worse the situation will be in the longer term. Gold is an asset that should do well through all this turbulence, all the money that is being printed to combat the effects of the virus and the interest rates being dropped to zero,” said Bob Haberkorn, senior market strategist at RJO Futures.

Physical and ETF demand

In what might give a shrewd indication of investors’ sentiment towards gold, they plowed in $2.9 billion into the (nearly) $50 billion SPDR Gold Shares ETF (NYSEARCA: GLD). This was the ETF’s biggest inflow gain since 2009.

In February, holdings of gold at gold-backed ETFs surged to a record 3,000 tonnes according to the World Gold Council.

Meanwhile, Bloomberg reported today that there is an acute shortage of gold coins and small gold bars due to the fear syndrome from the pandemic. Much like oil, these gold forms are facing a dual-shock, only in reverse: an explosion in demand and a decline in supply due to gold refineries under lockdown. It has reached the point that retail buyers have to pay a premium above the spot price to get their hands on coins and small gold bars.

Currently, these premiums are said to rule 10% - 15% above spot prices.