Gold & Silver Whipped by Non-Farms Data, Drop Through $1400 and $22.40

GOLD and silver prices whipped sharply Friday lunchtime in London, as new US jobs data matched analyst forecasts with a 175,000 rise in Non-Farm Payrolls for May and a slight rise in the jobless rate to 7.6%.

Having touched 1-week highs above $1419 per ounce on Thursday, gold fell back through $1400 Friday as European stock markets erased earlier losses.

Silver lost and then regained 30¢ per ounce before falling again through $22.40, also near this week's lowest level.

"Gold prices between $1425-1450 have typically proved difficult to sustain for long," said INTL FC Stone in a note Friday morning.

"We could be on the top end of the recent trading range."

But "the market [had] the feeling that it wants to go higher," says another broker.

"While the technical downtrend is still in place," says bullion market-maker Scotia Mocatta in a technical note, "the trend is weakening as gold slowly grinds higher."

The 33 analysts, traders and retailers surveyed each week by Bloomberg's commodities team are "more bullish" than any time since March 22 – three weeks before the worst crash in gold prices in 30 years.

Nineteen respondents expect gold prices to rise next week, the newswire says, against 8 bears and 6 neutral.

In the market, however, the number of hedge funds worldwide investing in gold fell from 310 to 290 between December and May, reckons EurekaHedge Pte Ltd., a Singapore-based consultancy, quoted by Bloomberg.

Latest data from US regulator the CFTC said speculative traders held the greatest number of bearish contracts on gold futures on record last week. Accounting for bullish bets, that move cut their net position as a group to a 5-year low equal to 171 tonnes.

Data for the week-ending Tuesday 4 June will be released after US markets close today.

Ahead of Friday's jobs report, a new research paper from the Chicago Fed said Thursday that the US economy needs to add 80,000 new jobs per month to keep the unemployment rate steady.

"It's time that we begin to gradually unwind [QE and zero rates]," said Philadelphia Federal Reserve president Charles Plosser – a voting member of the Fed's policy committee at alternate meetings in this year – on Thursday.

But markets have "over-reacted" to talk of tapering the Fed's $85 billion in monthly QE, he said.

"The markets seem to take this very seriously at some level, which I think is probably a mistake."

The Federal Reserve has said it will only consider raising interest rates when the jobless rate falls below 6.5%.

After the European Central Bank left its policy unchanged yesterday, France's trade deficit and government deficit both showed a rise for May in new data Friday morning.

German industrial output surprised analysts by growing 1.8% month on month, but the Bundesbank today cut its forecasts for economic growth from 0.4% to 0.3% for 2013, and from 1.9% to 1.5% for 2014.

"Weak credit trends in the Eurozone," says Standard Bank's currency strategist Steve Barrow, "reflect themselves in continued recession and low inflation.

"[So] we expect the ECB to cut rates further, possibly as soon as next month."

"The European banks had no choice but to shrink their balance sheets and sell assets," Reuters quotes a "senior source" commenting on the dramatic fall in lending to commodity traders since 2011.

With Europe's share of global commodity lending now down on one estimate from 75% before the Eurozone crisis to 50%, "I can't see them becoming dominant again," the newswire quotes Jean-Francois Lambert, head of commodity trade finance at HSBC.

Meantime in India – the world's heaviest gold-buying nation – the government's new campaign against household gold demand was challenged today by the jewelry industry, as well as market analysts.

"We are with the government on the need to reduce the current account deficit," the Wall Street Journal quotes but not at the cost of damaging the industry," chairman of the All India Gems & Jewellery Trade Federation, Haresh Soni.

"The recent round of initiatives to put a check on imports," says Pankaj Parekh, vice chairman of the Gem & Jewellery Export Promotion Council, "will make lives of small and medium jewellers difficult in the coming days."

Some 3.5 million people work in India's gold and jewelry sector, says the Economic Times, with 80% of them living in Bengal province.

But "The [government] knows they can't control jewellery demand," says Motilal Oswal analyst Kishore Narne to the Financial Times.

"They probably just think they might as well make some money off it."