Non-Farm Data Sinks Gold, Bond Prices Set For Fed Tapering

The PRICE of GOLD slumped $20 per ounce in 10 minutes Friday lunchtime in London, as the Dollar rose after much stronger than expected US jobs data.

Non-farm payrolls added 204,000 jobs net in October, the Bureau for Labor Statistics said, beating analysts' lowest prediction in a year of 125,000.

Dropping 2.5% from last Friday's finish, Dollar gold hit its lowest London Fix since 16th October at $1285.50 per ounce.

Silver also fell to a 3-week low, and also traded 2.5% down for the week, at $21.35 by mid-afternoon.

"The bar [was] set low," said a commodities note from Standard Bank just before the jobs data.

"If the outcome is better than consensus, we would expect gold, and other precious metals, to come under pressure."

World stock markets extended the day's drop, as did commodities.

German Bunds and other European debt prices fell, while US Treasury bonds fell so fast the annual yield offered by 10-year debt jumped 13 basis points to 2.73%.

That's the highest level in 7 weeks, since just before the US central bank surprised the markets by choosing not to "taper" the Fed's quantitative easing of $85 billion per month in asset purchases.

"Clearly the $1350 [level] didn't want to hold" in gold, says one London market-maker's trading desk in a note, reviewing recent action. "[Because] miners got busy selling production forward up there."

Australian gold miner St.Barbara said yesterday it has sold forward 7.5 tonnes of future production at a price of $1390 per ounce.

Small West-African producer Amara Mining this week sold 20% of its shares to a wealth management investor.

This year's slump in prices will start to dent the rise in world mining output from 2015, said a report this week from consultants MetalsFocus.

"With this [forward selling] in mind," that London trading desk's note goes on, "we can't really think gold will spike easily through $1350", which it now sees as a key level.

"Only longer-term holders shall be enticed to buy more gold while it's cheap. [But] at some point gold will catch up, strongly."

Meantime, "Gold faces downside risk in the near term," says a technical analysis from Barclays Capital.

"Although a small bid unfolds when priced in Euros, resistance near €1000 per ounce is a tough barrier."

Gold prices for Euro investors also fell on Friday's US jobs data, but less dramatically with a 1.3% drop.

One day after the European Central Bank cut its key lending rate to a new record low of 0.25%, the International Monetary Fund today urged newest Eurozone member Slovenia to recapitalize its banking sector "immediately".

Credit ratings agency Standard & Poor's meantime cut its long-term rating on France's sovereign debt from AA+ to AA, pointing to high unemployment and weak reforms by the government.

Further ahead, "Janet Yellen’s confirmation hearings [for the top job at the US Federal Reserve] are likely the next key event [to] have a direct impact on gold," reckons a note from Swiss investment bank and London bullion market-makers Credit Suisse.

"Given the market’s image of her as an uber-dove [favoring low rates and more QE] she is more likely than not to come across less dovish than expected during her testimony."

Adrian Ash

(c) BullionVault 2013

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