Gold Prices Settle Sharply Lower
Amid high volume trading, gold futures swung wildly on Friday to end 1.5 percent lower. The loss could have been much deeper had the jobs report for December, released by the Labor Department, showed better numbers.
Earlier on Friday, gold slumped to its 4-1/2 month low, to hit $1,625 an ounce mark as investors kept dumping safe-haven bets, fearing sooner than expected roll back of the Federal Reserve’s quantitative easing.
However, the metal bounced back 1.5 percent, gaining around $25 an ounce towards the end of session after the Labor Department’s statics showed that economy created lesser number of jobs than initially expected by economist even as unemployment level remained unchanged at 7.8 percent (November’s unemployment rate was upwardly revised to 7.8 percent from initial reading of 7.7 percent).
Gold futures for February delivery settled 1.5 percent lower to settle at $1,648.90 an ounce while spot gold edged down 0.6 percent to close at $1,653.60 an ounce.
The SPDR Gold Trust (ETF) (NYSE: GLD) ended the day 0.47% lower at $160.47.
According to Reuters, a preliminary available data showed that the trading volume was 50 percent above its 30-day-moving-average.
Quantitative easing (QE), which is buying of short and long term government bonds by the central bank to boost economy, has been the key factor behind gold’s bull runs since 2007—when financial market meltdown and subsequent recession prompted the Fed to provide series of economic stimulating measures.
Since QE entails rampant currency printing, investors, fearing currency debasement, seek safety in inflation-hedge instruments such as gold tends which in turn pushes the price.
On Thursday, the Federal Reserve released minutes from its latest policy meet held on December 11-12. The minutes showed that quite a few officials from the central bank were highly bothered about Fed’s massive asset purchases from financial markets. The report raised suspicion that the central bank could either cut short or lower the scale of quantitative easing. As a result, bullion investors started selling –off inflation hedge bets in drove.
“The Fed’s suggestion of a time frame to end its asset buybacks was enough to send stimulus-friendly gold prices reeling”, said Matthew Schilling, commodities broker at futures brokerage RJ O’Brien while speaking to Thomson Reuters.
However, the metal’s slide halted on Friday and took a U-turn when Labor Department’s employment report suggested a lackluster economic growth in 2013 which is likely to prompt the Fed to continue with its economic stimulating measures, said analysts, according to Reuters.
In a research note, Howard Wen, analyst at HSBC, wrote, “Investors think that the payroll report is still not enough to change the Fed’s accommodative policy, which is a positive for gold.”
Earlier in 2012, when the Fed launched its QE3 in September and later as it replaced “operation twist” program with monthly $45 billion asset purchase program in December, it said (on both occasion) that unemployment level was its biggest concern.
The ongoing QE measures are closely tied to the job market. That is, if the job market continue to remain stagnated or show only gradual improvement then the environment of low interest rate and excessive currency printing will continue, which in turn boost gold’s inflation-hedge appeal.
“ [The Federal Reserve’s minutes from latest FOMC] sucked all of the oxygen out of the room for gold bulls — and if not for the lackluster jobs report, I believe the selloff in gold would be more pronounced,” said Jeffrey Wright, managing director at Global Hunter Securities in a note to investors.
In some other markets, silver futures for March delivery fell 77 cents to close at $29.95 an ounce. Platinum futures slumped $21.40 an ounce or 1.4 percent to $1,558.50 an ounce while palladium futures slipped $6.85 or 1.2 percent to close at $688.50 an ounce.
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Post Written By: Ed Liston
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.
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