Gold prices gain on higher-than-expected U.S. unemployment rate, banking sector worries

Price action

• Gold for April delivery
  GC00,
  +2.08%

  GCJ23,
  +2.08%
  gained $32.60, or 1.8%, to settle at $1,867.20 per ounce on Comex, with prices for the most-active contract ending 0.7% higher for the week, according to Dow Jones Market Data.

• Silver for May delivery
  SI00,
  +2.21%

  SIK23,
  +2.21%
  rose by 34 cents, or 1.7%, to $20.506 per ounce, paring its weekly loss to nearly 3.5%.

• Copper prices for May delivery
  HGK23,
  -0.79%
  fell by a penny, or 0.2%, to $4.0305 per pound, losing 0.9% for the week.
• Palladium for June delivery
  PAM23,
  -0.49%
  declined by $12.40, or 0.9%, to $1,362.30 per ounce, with prices down 6% for the week, while platinum for April
  PLJ23,
  +1.46%
  rose $12.90, or 1.4%, to $962.20 per ounce, posting a weekly loss of 1.8%.

Market drivers

The U.S. jobs data was “solid” and coming on top of Federal Reserve Chairman Jerome Powell’s hawkish testimony, it would have posed a threat to gold’s floor near $1,800,” Adrian Ash, director of BullionVault, told MarketWatch.

But for bullion prices, the shock from the crash in shares of Silicon Valley Bank parent company SVB Financial Group
SIVB,
-60.41%
“has proven much stronger, driving gold higher as banking shares lead global stock markets lower amid sudden fears over credit quality and counterparty risk,” Ash said.

The U.S. created a robust 311,000 new jobs in February, the government reported on Friday.

Economists polled by The Wall Street Journal had forecast 225,000 new jobs. The increase in employment last month followed a revised 504,000 gain (initially 517,000) in January.

The unemployment rate, however, rose to 3.6% from 3.4%, and hourly wages saw its smallest increase in a year, up just 0.2%.

Gold prices climbed higher after the release of the jobs report, “reacting to a higher-than-expected unemployment rate, some cooling in wage inflation and a jobs created number significantly lower than the previous months,” said Jeff Klearman, portfolio manager at GraniteShares, which runs the GraniteShares Gold Trust
BAR,
+2.15%.

“The numbers, while not outright indicative of a cooling labor market, may give the [Federal Reserve] reason to continue with its policy of small, 25 [basis point] rate increases, while waiting to see the cumulative effect of already implemented hikes,” he told MarketWatch.

Meanwhile, the California Department of Financial Protection and Innovation, and the Federal Deposit Insurance Corporation closed Silicon Valley Bank on Friday following a plunge in shares of its parent SVB Financial, after the Santa Clara, Calif.-based financial-services company disclosed large losses from securities sales and a stock offering meant to provide a boost to its balance sheet.

Read Janet Yellen: Treasury Department is monitoring ‘a few banks’ including SVB

Gold is “reacting to worries over contagion in the banking system,” said Brien Lundin, editor of Gold Newsletter. “It’s obvious that investors are growing increasingly concerned about the entire banking sector.”

“The current financial system was built for ultra-low interest rates, and the pace and degree of the Fed’s rate hikes has almost assuredly caused great damage,” he said.

Weakness in U.S. Treasury yields and the dollar following the jobs data also supported gold prices, he said, and “likely indicative of expectations the Fed will refrain from returning to its previous aggressive monetary policy,” said Klearman.

The yield on the 10-year Treasury
TMUBMUSD10Y,
3.705%
was down by nearly 22 basis points at 3.699%, while the U.S dollar, as measured by the ICE U.S. Dollar index
DXY,
-0.64%
was down 0.7% at 104.60.

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