Gold futures eased Friday after better than expected US jobs data made further relaxation in Fed monetary policy, already very loose, less likely.
The April gold contract, the most actively traded on the New York Mercantile Exchange, gave up $23.00, over 1%, at $1,742 from a high of $1,765 a troy ounce before the news broke.
Futures settled Thursday at an 11-week high after six sessions of gains following Ben Bernanke’s decision to hold interest rates at levels near zero until end-2014.
Speculation that the Fed will eventually undertake QE3 kept the bullish momentum going for gold prices, but the good news on the US economy makes a fresh round of quantative easing less of an option.
Compare to stocks, gold, viewed as a safe haven and hedge against inflation, becomes less attractive as an investment with a stronger economy. Wall Street rallied on Friday, adding 140 points in the early going, and putting the benchmark within sight of a 52-week high.
Bloomberg reports the jobs data caught many by surprise:
“Wow,” James Dunigan, who helps oversee $107 billion as chief investment officer in Philadelphia for PNC Wealth Management, said in a telephone interview. “The jobs report confirms that this recovery is stronger than many people think. It speaks well to what earnings will be going forward and to what the possibilities are for equities. The riskier assets may turn out to be the ones with less risk.”
Marketwatch reports after the good economic indicator, the Fed fund futures now point to hike in summer 2014, but there is still long way to go:
Although hiring has accelerated since the end of last summer, the U.S. still has a long way to go to recoup all the jobs lost during the 2007-2009 recession. As of last month, 12.76 million people were officially classified as unemployed, and 5.5 million have been without a job for more than six months. That was little changed from December.
Gold has still risen almost 10% since the start of the year, its best performance since 1980, rebounding from the first quarterly decline in three years and scaling the $1,700 an ounce level for the first time since December 9.
However, the gold price remains well below the previous record high for gold set on Jan. 18, 1980 when, adjusted for inflation, the precious metal traded at $2,400 an ounce.
Comments
Robert Allan
Gold prices were falling slightly as investors rotated out of the metal and into stocks after a very positive U.S. jobs number. The number beat expectations with the American private sector adding 257,000 jobs and the unemployment rate falling to 8.3 percent. The labor force participation rate stayed firm, which means the decline in the unemployment rate was due to more actual hiring.
Canada’s numbers were not so positive. Statistics Canada reported a weak gain of 2,300 jobs last month, increasing the country’s unemployment rate to 7.6 percent. The Canadian economy continued its struggle to produce jobs in numbers large enough to absorb the increase in Canadians looking for work. Some economists had expected 25,000 jobs for the month, in part because of the unseasonably warm temperatures could have encouraged more hiring in some industries. But the increase was much weaker than anticipated, compounded by the 23,700 additional Canadians who joined the labour force, accounting for the climb in the jobless rate.
The U.S. dollar strengthened on their report as the outlook for the U.S. economy strengthened. But on the flip side of the positive – the negative weaker euro as helped the dollar gain some of its strength. Rumors have started swirling that Greece’s prime minister may resign. The stronger U.S. currency weighed slightly on the price of gold.
The gold watch right now is keeping an eye on some of the global inflation numbers, the better-than-expected strength out of China and the physical demand for the precious metal as a whole.
In the most recent Kitco News Gold Survey, out of 24 participants, 14 see the price of gold moving up, while seven see prices down, and three are neutral. Market participants include bullion dealers, investment banks, futures traders, money managers and technical chart analysts.
Those who see higher prices expect the rising trend to continue as gold has put in five weeks of gains, while those who expect price weakness said the market is due for a correction.