Gold News

US Jobs 'Kneejerk' Sinks Gold Bullion Near 6-Year Low, December US Fed 'Lift-Off' Now 75% Certain

GOLD BULLION sank within $10 per ounce of a near 6-year low in London trade Friday, dropping 1.1% inside 2 minutes as October's US jobs data showed the strongest rise in net hiring since May and the lowest unemployment rate since February 2008 at 5.0%.
 
The Euro hit new 7-month lows versus the Dollar at $1.073 and New York stock markets opened the day lower.
 
Betting on a December 'lift off' in US Fed interest rates from the last 7 years of 0% jumped from 1-in-2 to 3-in-4 according to futures market data.
 
Two-year US Treasury yields meantime jumped towards half-decade highs, offering new buyers 1.00% per annum, while 10-year yields rose to 2.33% – the highest level since gold set new 5.5-year lows at $1077 per ounce in late July.
 
Trading down as low as $1086 after the US non-farm payrolls report from the Bureau of Labor Statistics, bullion had earlier found very weak demand at this morning's LBMA Gold Price auction in London at a price of $1108 per ounce.
 
Silver also fell on the payrolls report but held firmer than gold, also losing 2.1% top to bottom but holding at 1-month lows of $14.76 per ounce.
 
"As always," says a note from David Govett at London commodity and bullion brokers Marex Spectron, "there is a big kneejerk reaction to these [US jobs] figures and close inspection of other factors such as average weekly earnings is warranted, as well as any revision to last month's figure."
 
September's initial reading of 142,000 net jobs was today revised down to 137,000. But average weekly earnings for October showed a 0.4% month-on-month rise – twice the rate of pay gain forecast by economists.
 
This week's earlier private-sector estimate of net non-farm hiring – based on "actual transactional payroll data" from the ADP Payrolls services provider – put October's rise as the 3rd smallest in 20 months at just 182,000.
 
Friday's BLS figure, in contrast, "is without question the sort of report that will continue to keep the [Fed] hike conversation for December alive and well," reckons Canadian brokerage RBC's chief US economist Tom Porcelli, quoted by Reuters.
 
"For even those folks that have been doubters about it, this has to pull them to the other side...A number like this is hard to shrug off."
 
"Lift-off will soon be appropriate," said Fed member Dennis Lockhart – a "moderate on the committee, described by some economists as dovish," according to Bloomberg News – in a speech Thursday, "[but it] remains a close call.
 
"Revisions...of how quickly remaining output and inflation-target gaps might close could quite easily point to a longer period for a zero funds rate." 
 
As for bullion, "Ongoing ETF outflows are also precluding higher prices," says a note from German bank Commerzbank, while "speculative financial investors are also likely to continue withdrawing from gold [derivatives]...likewise bring[ing] pressure to bear on the price."
 
Switching from a net bearish to strongly bullish position in Comex futures and options since late-July's new 5.5-year lows in gold at $1077 per ounce, 'managed money' traders last week trimmed both their long and short betting.
 
Overall, however, they still held a net long position – of bullish minus bearish contracts – equal to 210% of the 2015 average to date.
 
Thursday saw the giant SPDR Gold Trust (NYSEArca:GLD) – the world's largest exchange-traded trust product by value at gold's 2011 peak – shrink for the 7th session in ten, needing 1.2% less bullion to back its shares as stockholders liquidated at the fastest pace since mid-July.
 
Shrinking within just 4 tonnes of early August's fresh 8-year low at 667 tonnes, the GLD has now lost over 50% of its bullion since the end-2012 peak, and fallen 70% by value from gold's price records of late-summer 2011.
 
"We seem to be caught in a relentless and severe bear market in most commodity complexes," says the daily note from US brokers INTL FCStone, "and it is difficult to see what could conceivably break this psychology and persuade investors to give the asset class a more favorable second look."
 
Broad commodity indices lost over 1% on Friday, as US crude oil dropped back through $45 per barrel, corn dropped 1% and copper prices fell to 6-week lows.

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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