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Gold Rises But Gains Limited After 'Head Scratcher' U.S. Jobs Report

By Allen Sykora Kitco News
Friday January 10, 2014 9:54 AM

(Kitco News) - Gold futures rose, but somewhat modestly Friday after a report showing that U.S. nonfarm payrolls grew far less than expected in December.

“The jobs figures helped the rally in gold,” said George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures.

But at the same time, the unemployment rate – one of the barometers which the Federal Open Market Committee has said it is using to determine monetary policy – fell unexpectedly to 6.7%, the lowest level since October 2008. That, coupled with a certain amount of already existing bearish sentiment among analysts, helped limit the upside, observers said.

CIBC World Markets described the weak jobs growth but decline in unemployment rate as a “head scratcher.”

As of 9:37 a.m. EST, gold for February delivery was trading at $1,242 an ounce, a gain of $12.60, or 1%, the Comex division of the New York Mercantile Exchange. March silver was up 35.7 cents, or 1.8%, to $20.04 an ounce.

The Labor Department said nonfarm payrolls rose only 74,000 in December, the smallest increase early 2011. The gain in November payrolls was revised upward, however, to 241,000 from the initially reported 203,000.

Going into the data, consensus expectations called for December payrolls to rise by 193,000 to 197,000, with some economists said to be upping their forecasts at the last moment after a strong ADP report on Wednesday that estimated U.S. private-sector employers added 238,000 jobs in December.

Going into the report, the assumption was that a weak number might cause the Federal Open Market Committee to second guess how quickly to start withdrawing quantitative easing.

“It was a clearly weak number in terms of creating jobs – only a few compared to the consensus,” said Robin Bhar, metals analyst with Societe Generale. “That was bearish for the economy, bearish for the dollar and therefore positive for gold. So we’ve seen gold spike higher.”

Still, some might be surprised gold did not jump more than it did.

“Muddying the waters is the unemployment rate, which fell…,” Bhar said. “So it’s puzzling as to what the market will take from this report. It’s a very mixed report.”

There is now some indecisiveness in the market on how the FOMC will deal with an apparent quandary in which the first employment report after a tapering decision showed little jobs creation, he said. Policy-setters last month said they would trim their $85 billion-per-month bond-buying program, known as quantitative easing, by $10 billion.

“We’ll obviously know more in the last week of January when the next FOMC meeting takes place,” Bhar said. “It’s clear the Fed does have a problem. They said they will taper by $10 billion…Does that mean it will get postponed or will they continue with their plan? This leaves the market very uncertain as to what the Fed’s thinking is and what policy is likely to be.”

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So far, the high of $1,245 in February gold is just shy of the three-week high of $1,247.70 hit on Jan. 6. This is one area where buy stops could be resting, said Jim Wyckoff, technical analyst with Kitco Metals.

Gero said gold may simply have been held back by some of the pessimism in the market lately – or “too many bears in the woods,” as he put it.

“There are so many bearish analysts that the investor seems to be on hold and is waiting for follow-though,” he said.

The euro extended its gains against the dollar after the data, trading at $1.3639 compared to $1.3586 two minutes ahead of the report. The March S&P 500 futures pared their earlier gains, now trading at 1,835.20, a gain of 2.20 points, compared to a 8.20-point rise just ahead of time.

By Allen Sykora of Kitco News; asykora@kitco.com



Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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