Gold inter-market: post-NFP rally justified by a couple of intrinsics

After a brief period of consolidation between 1208-1220 levels witnessed almost throughout week ended June 3, gold prices finally broke to the upside last Friday and rallied nearly $ 40 intraday, after the US NFP report disappointed markets big time and squashed hopes of a June/ July Fed rate hike completely.

US non-farm firms added just 38,000 people to their payrolls last month, falling miles short of the 160,000 jobs estimated.

Gold disconnection with VIX continues

Now let’s try to analyse whether the intrinsics justified the steep rise seen in gold, and also whether the rally is likely to sustain in the week ahead.

Among the four highly correlated intrinsics impacting gold price behaviour, USD/JPY and 30-year treasury yields extend their inverse correlation with the bullion, with the moves in the former highly justifying the rebound in the gold prices.

The dollar-yen pair continued to move lower from last Monday, while during the same period, the yellow metal saw a phase of consolidation. Subsequently, USD/JPY plummeted almost 250-pips on Friday, which acted as a strong trigger for gold’s upside breakout from the consolidative mode.

The same case was observed with the 30-year US treasury yields, and hence, can be easily concluded that the gold rebound on Friday from ahead of $ 1200 marks can be explained by a steeper drop in the USD/JPY pair as well as longer duration US treasury yields.

While rest of the intrinsics, including the US equities and VIX failed to have any influence on the bullion, as lately observed they have started to get disconnected from the gold price-action.

During May-end, valuations in the US equities did justify the moves in gold, but last week saw US S&P 500 and gold having no connection. While the USD/JPY price-action continues to have major significant for gold trades.