Gold dips after weak jobs data

Prices settle lower as the US reports lackluster job growth in October.

By TheStreet Staff Nov 4, 2011 11:14AM

Image: Gold (© Anthony Bradshaw/Photographer)By Alix Steel, TheStreetTheStreet


Updated at 3:01 p.m. ET

Gold prices drifted lower Friday as the U.S. Labor Department reported fewer jobs were created in October than expected.


Gold (-GC) for December delivery settled down $9 at $1,756.10 an ounce at the Comex division of the New York Mercantile Exchange. Gold traded in a tight range Friday, reaching $1,766.50 on the high end and bottoming out at $1,749.80 an ounce. The spot gold price was shedding $8.20, according to Kitco's gold index.


Silver (-SI) prices finished down 41 cents at $34.10 an ounce while the U.S. dollar index was up 0.5% at $77.14.


Gold prices had popped more than 3% in two trading days and took a breather Friday as traders digested the latest read on unemployment in the U.S. The U.S. dollar index was also clawing its way back into positive territory, which was putting slight pressure on gold prices.


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The Labor Department said that the U.S. added 80,000 jobs in October and 104,000 private sector jobs. Both fell short of estimates. The unemployment rate did fall to 9%, however, and job growth for September was revised upwards by 55,000 jobs -- providing a mixed bag for the markets and gold.


Gold traders were also digesting news that Greece won't hold a referendum on austerity measures after the opposition party signed off on the deal and the possibility that Prime Minister Papandreou might step down or not survive his confidence vote.


Although the headlines will captivate the market, most experts say the jobs number isn't a big factor for gold. "It will have very little bearing in my view," Gerald Alain P. Chen-Young, chief investment officer for UNCF, but he does expect  "more range bound-ness and more volatility."


Frank Holmes, CEO of U.S. Global Investors, is also shrugging off the jobs number, focusing more on historical trends. "Looking back over the past 10 years historically we get a rally in November and December, 8% and 4%, respectively."


Holmes concedes that a stronger dollar might put some short-term pressure on gold but that the lack of fiscal restraints in the U.S. will put longer-term pressure on the currency and that, in the meantime, physical gold buying will prevail. "Half of the equation is the love trade in other parts of the world," he says referring in part to India's wedding season and the Christmas holidays in Western countries, both of which give consumers many reasons to buy gold.


Nigel Moffatt, head of Treasury at Gold Corporation, which operates the Perth Mint, says, however, that physical demand has been fickle recently. "(We have seen) nothing out of India and very little out of Thailand, Singapore, Malaysia, and Hong Kong. There's still volume demand out of China but the premiums are low."


Jewelry buying accounted for 48% of global demand in the second quarter, according to the World Gold Council, which means higher gold prices need both physical and investor demand to stay strong.


One factor that could help gold is Western central banks' accommodative policies. New president of the European Central Bank, Mario Draghi, surprised investors by cutting interest rates to 1.25% Thursday, something which many expected him to do before the end of the year but not days after taking the helm.


"I do expect the ECB will resemble the Federal Reserve far more than under Mr. Trichet," says Chen-Young, which will create one of two positive backdrops for gold.


Chen-Young says that as western countries ramp up deleveraging, central banks are forced to loosen monetary policies such as lowering interest or by buying assets -- pumping money into the system. Those gold investors will be buying the metal as an inflation hedge as the faith of paper currencies is called into question.


The other end of the equation, according to Chen-Young, is that emerging market countries are fighting higher inflation and more restrictive monetary policies, like rate hikes. Gold buyers in these countries like China and Brazil will also be buying gold as an inflation hedge but also as a diversifier. Those countries will not just own the U.S. dollar and euro in their reserves but emerging market currencies and gold as well.


Gold mining stocks were lower Friday. Barrick Gold (ABX) was down 1.6% to $51.19, while Newmont Mining (NEM) was shedding 0.4% at $69.06. Goldcorp (GG) was slipping 0.8% to $51.49, and Randgold Resources (GOLD) was dropping 0.6% to $118.04.




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