Gold Bounces From Lows, May Continue Higher Next Week

By Debbie Carlson of Kitco News
Friday April 05, 2013 2:01 PM

(Kitco News) – A lower-than-expected monthly U.S. jobs report facilitated gold’s bounce from a 21-month low on Friday and several gold market watchers said the yellow metal might see buying continue into next week.

June gold futures rose Friday, settling at $1,575.90 an ounce on the Comex division of the New York Mercantile Exchange, and were down 1.24% on the week. Most-active May silver rose on the day and fell the week, settling at $27.220, down 5.15% on the week.

In the Kitco News Gold Survey, out of 34 participants, 29 responded this week. Of those 29 participants, 19 see prices up, while six see prices down, and four see prices moving sideways or are neutral. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts.

A stronger U.S. dollar, stronger equities and less interest in gold as a safe haven have pressured the metal in recent weeks, with intense selling this week taking the market through this year’s low of $1,556.40, based on the June Comex contract. The contract fell as low as $1,539.40 on Thursday, its weakest level since July 2011.

That changed after the release of a surprisingly soft U.S. jobs report from the Labor Department Friday. The dismal employment report showed that the U.S. economy created only 88,000 jobs in March, the smallest gain in 10 months, versus the 190,000 expected to be made. While the unemployment rate fell to 7.6% from 7.7%, it came from fewer people looking for work. Several analysts said that’s a sign the pace of hiring in the U.S. is slowing. The participation rate, a measure of health in the labor market, slid again to 63.3%, marking the lowest level since 1979.

Also in the report, the Labor Department revised higher the payrolls for February and January.  February’s jobs number was revised to 268,000 from 236,000, and January’s figure was revised up to 148,000 from 119,000.

Gold prices, which were flat ahead of the data, rallied sharply in the first few minutes after the report and held the majority of its gains.

Several market watchers said the rebound wasn’t entirely surprising, given how negative market participants turned on gold in the short term.

“The push under $1,555 to (about) $1,540 got people extraordinarily bearish. But now we’ve had some poor jobs figures, today’s report was the third poor one. So we saw a lot of short covering after the numbers,” said Afshin Nabvi, head of trading at trading house MKS (Switzerland) SA.

In addition to the Labor Department data Friday, private payrolls firm ADP released softer March payrolls data on Thursday and earlier in the week, outplacement firm Challenger, Gray and Christmas said layoffs in March were 30% higher a year ago, although down from February.

For next week, watch Chinese consumer inflation and export data, due out Tuesday and Wednesday, respectively, analysts said, to get a sense on the health of the Asian nation’s economic health. Additionally, analysts said they’re going to keep an eye on the release of the March meeting minutes of the Federal Open Market Committee.

Prior to the jobs data, some financial market analysts spoke about the Fed perhaps easing off its quantitative easing program and said they’ll look for signs of that in the FOMC meeting minutes. There are thoughts now that considering the weak jobs number, the Fed governors’ views on bond-buying might change.

“People will watch the FOMC minutes for their views on QE, but I don’t see that changing, especially with that jobs number. They can’t pull back on stimulus,” Nabavi said

The market will also be watching for any further clues on monetary policy in Europe and Japan, said Charles Nedoss, senior market strategist with Kingsview Financial. The Bank of Japan, under a new governor, announced an ambitious quantitative-easing plan this week that exceeded market expectations.

Rich DeFalco, principal, 76Partners, said he’s “screaming bullish” on gold and said that the metal will likely benefit from a possible stock market correction that he expects will occur this month. Stocks fell sharply Friday after the jobs data.

Gold prices were lower recently after investors sought higher returns in equities in the first quarter, especially as the major indexes like the S&P 500 and Dow Jones Industrial Average set record highs.

DeFalco said corporate earnings will come out soon, now that the first quarter is over, and he expects those earnings to be lackluster, which might take a toll on the indexes.

Nabavi said for next week he is watching how gold actions around the $1,580 area, which he calls “really good resistance… If we can go through it, then we could test $1,600. I think prices can go higher next week. Politically there’s support for gold with the concerns about North Korea, and the BOJ is ramping up its stimulus – that’s what also helped the dollar earlier this week.”

North Korea will be a “wild card” for the gold market as traders watch to see if tensions escalate further, Nedoss said. If so, at some point a safe-haven bid could emerge in gold. North Korea has issued threatening statements in recent days and news reports say the country has moved missiles to its eastern coast. The U.S. has responded with increased preparedness, including deployment of ballistic missile defenses closer to North Korea.

“Does anything happen over there or is this just a bunch of senseless posturing,” Nedoss said

Follow me on Twitter! If you want to keep up with metals news and features, then follow me on Twitter. It’s free, too. My account is @dcarlsonkitco

By Debbie Carlson


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