Gold, silver mixed on April jobs report

The yellow metal bounces back, but silver extends its slump.

By TheStreet Staff May 6, 2011 11:14AM

Gold © Comstock Images/Jupiterimagesmore metals and mining news and investing resources from the streetBy Alix Steel, TheStreet

 

Updated at 4:35 p.m. ET

 

Gold staged a comeback Friday while silver prices continued to sag as the U.S. jobs number came in higher than expected.

 

Gold (-GC) for June delivery added $10.20 to $1,491.60 at the Comex division of the New York Mercantile Exchange after falling 4.8% in a week. Gold Friday has traded as high as $1,498.50 and as low as $1,471.10. The spot gold price was rising $21.50, according to Kitco's gold index.

 

Stocks jumped on the positive jobs report, but pared gains later in the day. The Dow Jones Industrial Average ($INDU) closed up 55 points to 12,639 after rising as many as 175 points at one point. The S&P 500 ($INX) added 5 points to 1,340, and the Nasdaq ($COMPX) was up 13 points to finish at 2,828.

 

Silver (-SI) prices were still shaking out leveraged traders, falling 95 cents to close at $35.29 an ounce after cratering 25% in one week. Silver has broken below multiple resistance levels at $38 and $36, and investors will now see whether it can hold at $32.

 

The iShares Silver Trust (SLV) dropped 118.34 more tons Thursday, bringing this week's total to 752.42.

Gold prices are holding up better than silver, a rare divergence. "Gold up, silver down is a very rare event -- less than 14% of all trading days since 1968," says Adrian Ash, the head of research at BullionVault.com.

 

Ash also notes that "gold fell harder than this in all of the last 10 springs except 2002, 2005 and 2007. Each of those drops then saw gold recover and breach its previous high by the next New Year, averaging a rise of 9.7%."

 

The combination of overbought conditions, margin hikes from the CME and other global clearing houses, and a recent parabolic move has zapped the "poor man's gold." The U.S. dollar index also staged a mini-rally this week, which sped up when European Central Bank President Jean-Claude Trichet appeared more dovish after the latest ECB meeting, dragging down the euro and propping up the dollar.

 

The U.S. dollar index was up 0.8% to $74.71 Friday after rumors spread that Greece was considering leaving the EU. The good jobs number boosted the greenback as well, as investors speculated that the Federal Reserve might be more likely to raise rates or shrink its balance sheet if the employment picture keeps improving.

 

Nonfarm jobs rose 244,000 in April, with the private sector responsible for 268,000 of them, reportedly the biggest monthly increase since 2006. The unemployment rate rose to 9%, most likely because more people, feeling better about the economy, entered the market. March private-sector job growth was revised upward as well. 

 

"I think the precious metals are looking for QE3," says Bob Haber, the CEO of Haber Trilix, and now "it's extended out in time for that to happen," if at all. A rising employment rate, Haber argues, is good for the economy and is how a regular expansion would unfold as more people feel better about looking for jobs.

 

In terms of the recent sell-off, Haber says, "We are going through a forced liquidation," which continued in silver Friday as traders prepared for Monday's margin hike.

 

Mihir Dange, a trader at Arbitrage, says that silver's sell-off might be overdone and that he would much rather be long silver than short at these levels, but he is cautious on both metals.

 

"After the volatility seen this week and the pace of sell-offs, particularly in silver, we could see the metals rise as end-of-week book squaring is seen," said James Moore, a research analyst at FastMarkets.

 

Pat Heller, the general manager at Liberty Coin Service, an online bullion dealer, says he has seen a slowdown in silver and gold buying and selling this week. "I expect that some people who were contemplating a purchase of gold or silver will now be turned away from the idea because they are seeing how volatile the markets can be. This greater volatility is something I expect to continue into the indefinite future."

 

Heller points to a stronger trend in accumulation rather than selling, and the dealer has had to keep purchasing the metals from wholesalers to fill orders. "Overall we are still swamped with customers."

 

Heller also cites shortage of physical silver in India as a strong demand factor for the beaten down metal. "It has been almost impossible to get immediate delivery of silver in India since the beginning of April."

 

He says that in the U.S. the Mint's primary distributors are no longer accepting order for Silver Eagle Dollars and that those who are say delivery won't happen for at least a month. It is unclear whether this is due to strong demand or a delay in when miners and refiners can deliver the physical metal to the Mint.

 

Jon Nadler, a senior analyst at Kitco.com, thinks silver's bubble has burst and gold's balloon has deflated. He thinks that silver and gold could see bounces in the future but that silver's range will wind up being between $26 and $32 and that gold could target $1,030 to $1,040 on the low end.

 

One of Nadler's reasons for being relatively bearish on gold is that the gold stocks didn't confirm gold's rally last week when it hit an intraday high of $1,577 an ounce. The correlation between the two has been weak, and stocks have not been providing the leverage of old, as traders and investors have a wider variety of gold products to invest in, from bullion to ETFs to funds to futures to stocks.

"We can't lose track of the fact that this sector, at the end of the day, produces the very metal that made the headlines, so the equities should have performed in concert with gold," Nadler said. "so I think there are some worrisome signs for the bullion side."

 

Gold mining stocks closed mixed Friday to cap a tough week. Goldcorp (GG) rallied 0.4% to $48.92, and Barrick Gold (ABX) closed slightly higher at $46.84. Newmont Mining (NEM) finished down 1.8% to $53.72, and AngloGold Ashanti (AU) fell 0.3% to $45.65.

 

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