Gold was trading down on the Comex this morning, with the traditional safe haven commodity dropping below the $1,400 per ounce mark, on the back of upbeat jobs data from the US Labor Department, to lose more than $30 per ounce in morning trading.
The most active gold futures market, the contract for August delivery, was down as low as $1,380.60 per ounce in the hours immediately following the release of figures, from a prior settle of $1,415.80.
Gold, notoriously sensitive to economic events, was responding to the surge in U.S. stock futures following Friday morning’s release of the May non-farm payrolls report, which recorded higher growth in net jobs added in May than expected. Despite the fact that the rate of unemployment, also covered in the report, also went up slightly, futures on the three main U.S. market indices bounced up between 0.3 per cent and 0.4 per cent within minutes of the release of figures, pulling investors away from the precious metal.
Gold’s bearish reaction to the figures is likely in response to the lack of a clear indicator of the direction the Fed is poised to take following the mainly neutral outcome.
According to the figures from the US Labor Department, total nonfarm payroll employment increased by 175,000 in the month of May, while the unemployment rate edged slightly higher in the same month to hit 7.6 per cent. Both figures were higher than expected, with economists polled by MarketWatch pegging jobs growth for the period at approximately 164,000, while the unemployment rate was expected to hold steady at 7.5 per cent.
Observers noted that the hotly-anticipated figures had to hit ‘the sweet spot’ – that is, while a figure too far beneath the average growth in monthly employment -- which for the last 12 months has been about 172,000 net new jobs per month -- would have had a dampening effect on markets, a result too high would spark fears in an already nervous market of an imminent curtailing of the Fed’s ongoing monthly bond purchase program.
With employment numbers coming in above expectations, speculation is rife that the Fed may move to limit or stop bond purchases sooner, a course of action which would have a deflating effect on the price of gold.
As CEO Ross Norman of London-based bullion brokers Sharps Pixley observes “The jobs data came in in line with consensus. I think there was fear of weak jobs data leading up to [the release], and to that extent gold was firm leading up to the announcement.”
However Norman says, the subsequent drop “is not warranted by what we’ve seen elsewhere in the market. The market seems quite skittish and that’s why gold’s taken a battering. It’s hard to translate the price into common sense.”
A large element of the selling, Norman says, “could be frustrated longs, frustrated with gold’s non-performance, thinking ‘why is the price not firmer?’ Equities should be weak and gold should be strong and that’s not the case, it defies common sense.”
The drop comes at the end of what has been three consecutive weeks of gains for the yellow metal.
Gold has seen a 12 year bull market arrested and reversed as recently as seven weeks ago, with a record setting nosedive, which saw a close of US$1,564 per ounce on April 11 turn into a loss of more than $200 per ounce over the next two days’ trading to hit as low as US$1,320 an ounce. Since then, the metal had made steady and sustained rises on the Comex.