Gold falls after strong jobs report

After closing the first quarter at a new high, gold stumbles out of the gate as the US unemployment rate drops and payrolls rise more than expected in March.

By TheStreet Staff Apr 1, 2011 10:21AM

Gold © Comstock Images/Jupiterimagesthe streetBy Alix Steel, TheStreet

 

Updated at 3:12 p.m. ET

 

After ending the first quarter at a new high, gold prices took a hit Friday as investors opted for stocks after a strong reading on U.S. jobs in March.

 

Gold for June delivery fell $11 to $1,428.90 an ounce at the Comex division of the New York Mercantile Exchange. Gold traded as high as $1,437.80 and as low as $1,413.50 while the spot gold price was losing $4.40, according to Kitco's gold index.

 

Silver prices shed 16 cents to close at $37.73 an ounce.

 

Both metals finished the first quarter with a bang. Gold settled at a record $1,439.90 an ounce Thursday, while silver prices closed at a 31-year record of $37.88 an ounce after surging 22% in the first quarter.

 

The Bureau of Labor Statistics said Friday that nonfarm payrolls in the U.S. rose by 216,000 in March. That was well ahead of the 185,000 increase economists had been expecting, according to consensus estimates from Briefing.com.

Companies added 230,000 jobs, helping to offset the decline in state and local government payrolls. Economists forecast private payrolls to increase by 203,000, according to Briefing.com. ADP said Wednesday that it estimated companies added 201,000 jobs in March.

 

The unemployment rate unexpectedly ticked down to 8.8%. The unemployment rate has dropped for four straight months, with the household survey showing a more rapid increase in employment than the establishment survey.

 

The upbeat data lured investors away from haven assets like gold and US Treasurys and into riskier equities. By late afternoon, the Dow Jones Industrial Average ($INDU) was up 40 points, or 0.3%, at 12,360, the S&P 500 ($INX) was up 5 points, or 0.4%, at 1,331 and the Nasdaq ($COMPX) was rising by 3 points, or 0.1%, to 2,783.

 

After gold's 1.3% rise in the first quarter, investors might also be trading in gold for cash. Gold was hit in January with this type of rebalancing, when portfolio managers reshuffle assets in their portfolio from quarter to quarter. Gold rallied 2.7% in December but then shed 6.6% in January, so any selloff in gold prices Friday and next week might be part of the same trend.

 

Gold prices historically rise 4.3% in the second quarter, but Jon Nadler, senior analyst at Kitco.com, still sees the range for gold between $1,400 and $1,450 an ounce. Nadler doesn't see lots of new money in the gold market, so there is no oomph to push prices higher.

"The fact that after this horrific quarter (gold) is already not at $1,500, that's (something) to worry about," he said.

 

Other analysts don't expect today's selloff to last and are using it as a buying opportunity. David Banister, chief investment strategist at ActiveTradingPartners.com, is calling for $1,515-$1,550 gold in the next few months. "Sometimes these data points come out and there is a little bit of a knee-jerk reaction, but I believe eventually we will push right through."

 

The biggest wild card has been recent talk from Federal Reserve presidents about possibly raising rates to 1% before the end of 2011, and today's solid jobs data would support that rhetoric. But Banister believes that even if the Fed were to raise rates, gold prices would still rally. Gold could pull back "a little further . . . (but) real interest rates are still negative and that's always positive for gold."

 

Strong physical demand from India and China may help support gold prices when investor demand slacks off. G-20 leaders reportedly are considering including the yuan in the IMF's basket of currencies, which would put the yuan on the map as a leading global currency. Many experts speculate that China has been furiously buying gold in order to beef up the legitimacy of the yuan -- not a gold standard but a gold helper.

 

"Private citizens have bought more gold in the last 30 months than the People's Bank of China owns altogether," says Adrian Ash, head of research for BullionVault.com. Currently, 1.8% of China's central bank reserves are in gold.

 

There had been reports circulating on China TV that dealers were running out of coins and demand was soaring.

 

Nadler says he hasn't seen any concrete data to support the assertions.

 

The CPM Group's gold yearbook for 2011 says that gold consumption in China rose at an annual compounded growth rate of 7.5% from 2001 to 2010 and that fabrication demand, gold coins and bars, should rise to 14.3 million ounces in 2011, a 8.9% jump from 2010. Total gold demand in the country is expected to rise 16.6% in 2011.

 

India is also vying for the top spot, accounting for 32% of global demand in 2010, according to the World Gold Council, sponsor of the SPDR Gold Shares (GLD). The WGC estimates that by 2020, cumulative annual demand for gold in India will increase to an excess of 1,200 tons.

 

Gold mining stocks, a risky but sometimes profitable way to buy gold, were trading lower along with the metal Friday. Barrick Gold (ABX) was down 1.1% to $51.35 and Newmont Mining (NEM) was slipping slightly to $54.52. AngloGold Ashanti (AU) was bucking the trend, gaining 1.9% to $48.88.

 

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Apr 4, 2011 9:09PM
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The Stock Market is so irrational and illegal...it is just the way OBAMA did run this country for the last 2 years and from what I see...there is FOG ahead for the next 2 years. The stock market hitting a Hi!. yeap all those involved are smoking weed.
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