Gold Recoups Overnight Losses After Softer-Than-Forecast Jobs Report

Posted by Allen Sykora of Kitco News

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Gold futures quickly recovered from their overnight weakness Friday after the government issued a weaker-than-forecast U.S. jobs report.

The metal initially slid overnight largely when sell stops were triggered on a break below $1,300 an ounce, with the initial impetus being the idea that stronger U.S. economic data in recent days pointed to a probability of the U.S. Federal Open Market Committee scaling back on its bond-buying program this fall, observers said.

However, at the start of the New York trading day, a Labor Department report said non-farm payrolls climbed by 162,000 in July. This was below consensus forecasts of 175,000 to 185,000, enabling gold to pop higher.

As of 8:50 a.m. EDT, gold for December delivery was up $4.60 to $1,315.80 per ounce on the Comex division of the New York Mercantile Exchange. It was at $1,285.30 five minutes prior to the jobs report.

September silver was up 50.1 cents to $20.125 an ounce. The contract was at $19.385 just ahead of time.

“We got a bounce on the jobs data because it’s all about the dollar and whether stimulus will be less or not,” said George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures.

Presumably, less-robust jobs growth means less chance of some stimulus being withdrawn in the foreseeable future. The euro was up to $1.3269 from $1.3209 late Thursday.

Sterling Smith, futures specialist with Citi Institutional Client Group, said the jobs data was soft enough to help gold avoid any further weakness for now. There were some so-called “whisper” numbers that the payroll number could have been as much as 220,000, he said.

“That might be sparking a little buying interest,” he said of the softer data.

However, he attributed much of the bounce to short covering ahead of a weekend.

Gero said, however, that he looks for gold to remain range-bound for now due to not enough worries in the market about inflation, especially with other commodities such as copper and grains down for the year so far.

Overseas traders said gold’s decline accelerated overnight in Asian trading on the break of $1,300 an ounce, triggering sell stops. These are pre-placed orders triggered when certain chart points are hit. The $1,300 area had offered nearby chart support for gold over the last two weeks, as the December futures climbed through this level on July 22 and held above it until overnight trading.

Whereas gold poked its head back above $1,300 after the data, Smith said a failure to close above here could portend further technical weakness.

The overnight move was encouraged by stronger-than-forecast U.S. data in recent days that included second-quarter gross domestic product and the Institute for Supply Management’s manufacturing survey, analysts said.