The gold price declined $6.15 to $1,059.01 as continued strength in the U.S. dollar and a drop in the unemployment rate below 10% weighed on investments linked to the price of gold, including gold ETFs, gold futures, and gold stocks. The price of gold has now fallen $167, or nearly 14%, from the gold price all-time high of $1,226.50 per ounce reached in early December. Weakness in the gold price has pressured shares of gold mining companies that benefit from higher gold prices, as the Market Vectors Gold Mining ETF (GDX) has fallen over 28% since its 52-week high, also in early December.

This morning’s weakness in the gold price and strength in the dollar was driven by the January employment report, in which the unemployment rate fell from 10.0% to 9.7% - better than the 10.0% median estimate from a Bloomberg News survey of 85 economists. While the headline unemployment rate number was positive however, the nonfarm payroll figure of 20,000 lost jobs in January came in below the market expectation of a 15,000 jobs increase. An additional worrisome sign was that job losses in December 2009 were revised significantly lower, to 150,000 from 85,000.

Upon release of the news the U.S. Dollar Index (DXY) decisively advanced past the key 80 level for the first time since July 2009, while the gold price hit a new low for 2010 near $1,050 per ounce before recovering some of the decline as morning trading progressed. The mixed message sent by the employment data - of a lower unemployment rate but continued job losses - created additional uncertainty for market participants, who as of late have chosen to shoot first and ask questions later by indiscriminately selling all dollar-denominated asset classes to raise cash.

The market action over the past several weeks has been somewhat reminiscent of fall 2008, when liquidation across a broad base of asset classes fueled a significant rally in the U.S. dollar and a substantial correction in gold prices and gold mining stocks. While it remains to be seen if the recent correction in the price of gold has run its course, the policy response from the Federal Reserve as a result of the unemployment data will dictate the future path for the U.S. dollar and gold price. If Ben Bernanke feels that the job market has improved sufficiently, he may choose to withdraw stimulus or tighten monetary policy - a recipe for a stronger dollar and weaker price of gold. However, if the Federal Reserve sees additional challenges in the employment situation, investors can expect Bernanke to maintain near-zero interest rates and quantitative easing - significant catalysts for a higher gold price.