This Week in Gold: Ukraine, China, and U.S. Jobs Data

Gold experts were buzzing in late 2013 about prices increasing in 2014, and they seem to be correct so far – gold prices have risen 11% since the start of this year. Both domestic and international news in particular have had a large impact on gold prices as of late. This week in gold, the interesting relationship between gold prices and the economy is apparent. For the most part it is an inverse relationship in which gold prices rise as the economy falls. While this may sound strange, it makes sense when considering the motivation to buy gold as a hedge against economic and political turmoil, which could make paper currency essentially worthless. Gold cannot be printed, so it makes for a great “safe-haven” tangible asset to possess in the event that inflation becomes rampant. Here are the events of the past week that demonstrate this relationship between gold and the global economy.

Crisis in Ukraine

Building tensions between Russia and Ukraine have made gold investors nervous. This week in particular the tension is reaching a high as the Ukrainian region of Crimea has prepared a referendum set for March 16th that may allow them to join Russia. In response, gold has risen to its highest price in six months, and in this week alone prices are “heading for the best run of weekly gains since August 2011.” Bullion ready for immediate delivery rose by 0.6% to $1,374.69 an ounce. The uncertainty of the situation and the potential for unrest has been prompting gold investors to buy, therefore increasing demand and driving up the price.

China Concerns

Concerns over China’s economy also contributed to gold’s six-month high reached on March 13th. Data revealed a slowdown in the Chinese economy in January and February of 2014, and news earlier in the week showed a trade deficit. China’s importance on the world’s economic and political stage has a strong influence on gold prices – it is the world’s largest trading nation and has the second largest economy. As previously mentioned, investors often use gold as a hedge against economic slowdown and inflation, so it’s not surprising that spot gold rose 0.4% by halfway into the business day.

U.S. Jobs Data

Undoubtedly the status of the U.S. economy – currently the world’s largest economy – affects gold prices here as well as abroad. The reaction to recent U.S. jobs data demonstrates the flip side of the gold-economy relationship: when the economy is or is expected to be doing well, gold prices tend to fall. The latest federal jobs report shows the U.S. added 175,000 jobs in February and unemployment has risen to 6.7%. As a result gold took a loss after five straight weeks of gains. Spot gold fell by almost 1% on March 7th. Chinese investors in particular are selling their bullion after the jobs report squashed their fears of an economic downturn in the U.S. In this case, demand for gold fell after this positive economic news decreased the feeling among investors that a safe haven is necessary at this time – the opposite of the effect the crisis in Ukraine and worries over China’s economy had on gold.

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