Gold Prices Tumble

Amid heavy trading volume, gold prices slumped over 2 percent on Friday to settle at an eight-week low after unexpectedly strong US non-farms payrolls data, raised fears that the Federal Reserve might reverse its economic stimulating measures while firmer dollar in the wake of improving economic indicators and wait-and-watch policy adopted by market participants ahead of presidential elections also weighed on prices.

Gold futures on Friday posted fourth successive weekly loss, having lost nearly 2 percent for the week.

Spot gold slumped almost $37, or over than two percent, to trade at around $1678 ounce and U.S. gold futures for December delivery plunged by $40.30 an ounce or 2.4% to close at $1,675.20.

The SPDR Gold Trust (ETF) (NYSE: GLD) ended the day 2.10% lower at $162.60.

Bullion prices, which skyrocketed after the Federal Reserve announced its $40 billion monthly bond buying program back in September, have now pared all their gains made in last two months.

According to Reuters, technical charts suggested that Friday’s heavy sell-off sent prices below a key Fibonacci retracement support and close to its 100-day moving average, a level which was seen during mid-August.

Earlier on Friday, a data provided by the Labor Department showed that employers added 171,000 jobs in October, compared to economists’ consensus estimate for 125,000 jobs creation. Besides, a data on factory orders for September turned out better-than-expected, strengthening the US dollar and making dollar priced commodities more expensive for traders dealing in other currencies.

The ICE Dollar Index, a measure on US dollar’s performance against a basket of six major traded currencies, rose to 80.538 on Friday from 80.052 on Thursday in late North American trading.

“Gold tested $1,700 twice last week, so it was always vulnerable to a strong nonfarm [payrolls] report, The move takes us back to where we were just after [Fed Chairman] Ben Bernanke’s Jackson Hole speech at the end of August, and offers further confirmation that September’s QE3 buzz has now well and truly worn off,” commented said Ben Traynor, chief economist at BullionVault.

Market participants now fear that the Fed will cut short its ongoing bond purchase program in the backdrop of improving economic indicators which in turn would hit metal’s inflation-hedge allure.  However, analysts, according to Reuters believe that economic data is still not strong enough to press the Federal Resreve reversing its monetary easing program.

Meanwhile, gold prices were also capped, throughout the week as investors remained in sidelines ahead of the U.S. presidential elections, resulting in heavy liquidations across all asset classes on Friday.

James Steel, metal analyst at HSBC said, “Better-than-expected numbers reduced the risk demand for gold, and a drop below $1,700 an ounce triggered sell-stops and momentum selling, there are also long liquidation ahead of elections triggered by the job number.”

Spot Light On Presidential Elections, ‘Fiscal Cliff’ and China’s new Leadership

While market participants keenly anticipate the outcome of the U.S. presidential elections, another major cause of concern is the looming threat of the ‘fiscal cliff’. If the lawmakers in Washington fail to build a consensus over trimming down the fiscal deficit by the end of the year then it will automatically result in massive spending cuts and increase in taxes. If such situation arises then the U.S. economy might even plunge into recession.

Also the once-a-decade leadership change in China is about to happen in next few weeks. Global investors will be anxious to find out whether the new regime will take bolder economic stimulating measures which in turn could lift gold’s prices. This week China’s government injected $60 billion into the money market with an aim to spur up infrastructure spending.

Moving onto some other metal markets, silver fell 3.5 percent to end at  $31.09 an ounce. Platinum edged down over one percent to settle around $1,542 and palladium slumped nearly two percent to close at around $599 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.