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A week in gold: Stability undermined by US jobs increase

Last updated: 17:31 06 Dec 2014 AEDT, First published: 18:31 06 Dec 2014 AEDT

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Gold’s relatively stable week came under pressure Friday as monthly US non-farm payrolls came in with the strongest number for years.

The data revealed 321,000 jobs were added in November, almost 100,000 more than predicted and the largest monthly gain since the beginning of 2012.

Unemployment overall fell to 5.8%, while average hourly earnings rose 0.4%, the biggest rise for more than a year.

Economists said the figures were good on almost every measure as well as marking the tenth month running that US had created more than 200,000 jobs.

Spot gold fell US$10 as the dollar rose again on speculation that such a strong number might encourage the US Federal Reserve to raise interest rates quicker than expected. Most economists expect rates to start to rise in the second half of 2015.

Janet Yellen, the Fed’s chair, has said already that the “unemployment rate is probably the best single indicator of current labor market conditions”.

“The pace of payroll employment growth is highly correlated with a diverse set of labor market indicators, and a decline in unemployment is more likely to signal genuine improvement in the labor market when it is combined with a healthy pace of job gains.” 

Gold is traditionally used as a hedge against the US currency, but prior to the non-farm numbers the spot price had held relative steady at between US$1,200 to US$1,200 even though the dollar index is at a five and a half year high.

The US currency has been boosted this week by the ECB stating it will consider widespread asset buying measures at its meeting in January in another attempt to kick-start a flagging eurozone economy. 

One result of the euro’s weakness has been that for European holders of gold the price has shot higher.

Commerzbank noted that the prospect of quantitative easing by the European Central Bank had pushed the metal to a four-month high of €986 per troy ounce. 

At the beginning of the week, in euro terms,  gold was still trading below €920 per ounce, it added. 

That euro price could rise even higher if the ECB does take action, while economists are already starting to look towards the next Fed meeting on 17 December to see if the central bank is ready to take a more hawkish stance.

Spot gold was trading at about US$1,194 per ounce shortly after Wall Street trading got underway.


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