Comex Gold Rises After U.S. Jobs Report, But Gains Limited Since Data Mixed

by Allen Sykora from

(Kitco News) - Gold traded modestly higher for most of Friday’s session after a softer-than-forecast rise in U.S. employment during April was construed to mean a slightly increased chance for more Federal Reserve easing and, just as significantly, also cooled worries about how quickly policy-setters eventually might hike interest rates farther in the future whenever an economic recovery gains traction.
The data did not result in a sudden and sharp move, however, with some characterizing the report as somewhat mixed since employment was revised higher for prior months.
As of 12:35 p.m. EDT, gold for June delivery was $6.30, or 0.4%, higher at $1,641.10 an ounce on the Comex division of the New York Mercantile Exchange.
Much of the market’s recent focus has been on whether to expect looser monetary policy by the Federal Open Market Committee. Thus, gold has tended to fall when strong data and hawkish Fed comments were construed to mean less chance of a third round of quantitative easing, but to rise on weak data and dovish comments.

The Labor Department reported a gain of 115,000 jobs during April, less than consensus forecasts for around 160,000 to 165,000. At first glance, this would seem to be a story of weak data implying continued dovish policy.
However, gold’s uptick was limited right after the report, and traders at the time characterized the data as mixed due to the back-month revisions.  Gains in March payrolls were revised up to 154,000 from the initial 120,000, and the February gain was increased to 259,000 from 240,000. Also, the unemployment rate fell to 8.1% from 8.2%, although this was linked to a smaller labor pool as more people stopped working for work.
Overall, the report was tilted toward economic weakness, which is why equities are under pressure, said Dave Meger, director of metals trading with Vision Financial Markets.
“There is a slightly higher prospect for more quantitative easing, or at least the potential hasn’t swung any further toward lack of easing,” Meger said. “That is undoubtedly going to be slightly positive for the metals. Also, we’re coming off what we view to be support around the $1,620-$1,630 area.”
At times when gold has fallen in recent months, traders worried that policy-setters eventually might move forward the expected start of the next tightening cycle. This was reflected in Fed communications after the last FOMC meeting. In January, of 17 Fed members polled, five had looked for the first rate hike in 2014, four said 2015 and two said 2016 (the rest were 2012 or 2013). By contrast, after the late-April FOMC meeting, seven say the first rate hike will be in 2014 and four in 2015.
Even if the U.S. jobs data did not significantly hike easing expectations, it might at least help alleviate any future tightening worries, Meger related.
“We’ve already seen dissenters that were leaning more toward late 2013 as opposed to what the Fed (majority) continues to say, which is low rates through 2014,” Meger said. “If we continued to see strong, positive economic data…market participants would start to feel maybe we’re going to see more and more dissension and the idea that (the Fed) could take away these low rates somewhere in late 2013. That would obviously be more detrimental to the metals.
“So this is the opposite effect,” Meger said of the April report. “We did not get the stronger-than-expected jobs numbers. So we are less concerned that these low rates are going to go away any time soon.”
Still, gold’s gains were limited. The metal hit its session high of $1,648 around 10:15 a.m. EDT, then gave up all of its gains before starting to rise again late in the New York morning.
“There were so many different ways to interpret the job numbers,” said Kevin Grady, president of Phoenix Futures and Options on the Comex floor, citing the weak headline number but upward revisions in back months and lower jobless rate. “The markets are very, very jittery right now, looking to every single number….People really are not sure how to react.”
Nomura Global Economics, in a research note to clients, said “the negatives clearly outweigh the positives” in the jobs report. Nomura said this “surely will bring more discussion” of a third round of quantitative easing into the June FOMC meeting. Still, Nomura said, the jobs report was “not sufficient to make it our baseline expectation.”
Gold’s bounce to the session highs was aided by apparent short covering, Grady said. When June gold broke down below nearby chart support around $1,645.10 on Thursday, he said, some traders opted to short, or sell, the market.
“So that exacerbated the move on the way up,” he said of buying to cover, or offset, these short positions, when gold climbed Friday.

Gold did back down from its high, however.
“The unemployment report has come and gone,” said Jim Comiskey, senior account executive with Archer Financial Services. Now, he said, the market may be pricing in Greek parliamentary and French presidential elections on Sunday. In France, Francois Hollande leads incumbent Nicolas Sarkozy in the polls. There are market concerns that a Hollande win may mean France is less likely to work closely with Germany on debt issues in peripheral eurozone nations.
“The debt crisis is coming to a head very, very rapidly,” Comiskey said. “It’s not going too far to say the spirit of nationalism is growing by leaps and bounds in nearly every European country.”
And this, he continued, may pose a threat to the future of European monetary union.
Since the European debt crisis moved to the forefront in recent years, an escalation has tended to weaken the euro and drag gold lower with it. However, when the crisis has become especially acute, gold has drawn safe-haven demand that enabled it to firm alongside the U.S. dollar.