Gold Price Firm After Jobs Data Beats

GOLD PRICE NEWS – The gold price climbed $10.20 to $1,657.85 per ounce Friday morning, holding firm despite a stronger than expected jobs report in the United States.  The Labor Department reported a gain of 117,000 nonfarm payrolls versus an estimate of 85,000 according to a Bloomberg survey of economists.  The unemployment rate fell 0.1% to 9.1%.  The weak jobs picture has been a key area of focus for the U.S. Federal Reserve.  Tepid jobs data, notwithstanding this stronger than anticipated report, has been a key driver of rising speculation that Chairman Bernanke may be preparing for a third round of quantitative easing.  Gold prices are advancing as traders and investors add to positions in the yellow metal via physical gold, gold futures, and exchange-traded funds backed by gold bullion.

The gold price reached another new all-time high yesterday morning before turning sharply lower.  After touching a new record high of $1,681.70 per ounce, the spot price of gold tumbled over $30 as broad-based liquidation in global markets weighed on the yellow metal.  The Global Precious Metals Team at TD Securities noted that “Gold maintained safe haven status for quite some time yesterday and posted a new all time high spot price above $1680.00 but the ferocity of the sell-off in other markets spilled over as the day wore on.”  The gold price ultimately settled lower by $14.57 at $1,647.57 per ounce, while the SPDR Gold Trust (GLD) – a proxy for the price of gold – fell 0.5% to $160.63 per share.

Silver’s trajectory mirrored that of the gold price, as the precious metal initially rose as high as $42.29, but finished the day steeply lower, off 7.4% at $38.66 per ounce.  Gold and silver equities posted substantial losses as the Philadelphia Gold & Silver Index (XAU) dropped 6.0% to 197.12.  Barrick Gold (ABX) and Goldcorp (GG), the world’s two largest mining companies, retreated 5.9% and 6.0%, respectively.

Precious metals stocks were dragged down not only by the price of gold and silver, but also by the broader equity markets.  The Dow Jones Industrial Average (DJIA) plummeted 512.76 points, or 4.3%, to 11,383.68 as concerns over the state of the U.S. and European economies intensified.  Coupled with its losses in recent weeks, the Dow Jones posted its largest ten-session drop since the multi-decade low of 6,440.08 reached in March 2009.

The U.S. dollar was one of the few beneficiaries on the day as forced selling and margin calls led to an unwinding of dollar carry-trade positions.  The entire commodities complex came under pressure, evident by a 5.8% slide in crude oil futures to $86.63 per barrel – their lowest level since mid-February.  Rising investor risk aversion was evident in spike in the CBOE Volatility Index (VIX), which soared 35.4% to 31.66, its highest level since July 2, 2010.

While the gold price held up far better than most asset classes, it showed that it is not immune to sharp corrections when investors clamor to raise cash.  Deteriorating economic data in the U.S., along with further turmoil surrounding the European debt crisis, fueled investor concerns on Thursday.

European Central Bank (ECB) President Jean-Claude Trichet announced that the central bank would expand its purchases of government bonds to other members of the PIIGS besides Greece.  Following Trichet’s pledge to print more money to try to alleviate the crisis, the euro fell 1.5% to 1.4104 against the U.S. dollar.

In a recent investor letter, via the New York Times, Elliot Management’s founder Paul Singer attributed much of the economic and fiscal problems facing the U.S. and Europe to ill-advised government policies.  ‘”The distortions in public policy in the U.S. and Europe have introduced extraordinary undercurrents which are hidden from sight,” he wrote, “but they are entirely capable of changing the landscape very quickly, and probably not for the better.”

Singer – whose hedge fund manages over $16 billion in assets – went on to say that “In both the U.S. and Europe, the budget and balance sheet numbers do not work.  When ‘off-balance sheet promises are taken into account, the U.S. and most countries of the Euro zone are insolvent…The appropriate course is for Greece (and perhaps others) to have as controlled a default as possible and to exit from the Euro.”

Although Singer did not specifically discuss the gold price, he did make a comment that would likely have bullish implications for the price of gold: “As this is written, the prices of financial assets do not seem to take into account the risk of a history-altering reversal of confidence in paper money, the U.S. dollar, the American economy and its political leadership, or the Euro currency block.”