By Mr. Prithviraj Kothari, MD,RSBL
The
downtrend in gold continues, with the metal charting its seventh straight
session loss and expectations for the same trend continue for the coming week.
The
gold price was steady on Friday morning, making time ahead of the much-awaited
US non-farm payrolls data, set for release later in the day.
Gold
was confined to a narrow trading range, before the release of the monthly US
jobs report.
Once
the report was out, gold prices plummeted
as the market continued its recent downtrend.
Gold
fell below $1,100 on Friday after US jobs data surprised with the upside,
raising the chance that the Federal Reserve will increase interest rates by the
end of the year.
Spot
gold was last at $1,087.40/1,087.60 per ounce, down $17 on Thursday’s close. At
its intraday low of $1,085.40, it was at its cheapest since August 7.
After the
U.S. labor market revealed its fastest pace of job gains this year, gold, on
Friday, witnessed its lowest level since early August.
Treasuries
tumbled and the dollar strengthened, as the report alleviated concerns of a
hiring slowdown after weaker payroll advances cooled in August and September.
Such improvement means a go-ahead signal for the Fed officials, who last month
held out the possibility of a December rate increase.
Since
this report was considered as one of the key influential factors for a rate
hike, let’s have a detailed look at the highlights:
- The US economy added 271,000 jobs in October, while the unemployment rate fell to 5.0 percent
- The government revised the September jobs gain down to 137,000 from the previously reported 142,000
- The August gain was revised up to 153,000 from 136,000. Over the prior 12 months, employment growth had averaged 230,000 per month
- Meanwhile, the unemployment rate dipped to a seven-year low of 5.0% in October, from the 5.1% level of the previous month
- Consensus expectations compiled by various news organizations called for non-farm payrolls to rise by between 177,000 and 190,000 in October, while the unemployment rate was expected to hold at 5.1%.
- In October, average hourly earnings for all employees on private non-farm payrolls rose by 9 cents to $25.20. The average workweek for all employees on private nonfarm payrolls remained at 34.5 hours in October.
- The Labor Department said job gains occurred in professional and business services, health care, retail trade, food services and drinking places, and construction sectors.
- Employment in professional and business services increased by 78,000 in October, while healthcare added 45,000 jobs and retail trade added 44,000.
- Employment in mining continued to trend downwards in October with a 5,000 decline. The industry has shed 109,000 jobs since reaching a recent employment peak in December 2014, the government said
- The civilian labor force participation rate was unchanged at 62.4% in October, following a decline of 0.2 percentage point in September, the Labor Department said. The number of persons employed part-time for economic reasons (sometimes referred to as involuntary part-time workers) edged down by 269,000 to 5.8 million in October, the government added.
- In additional data from this morning, average hourly earnings month-over-month rose 0.4 percent, above consensus at 0.2 percent.
The
271,000 gain in payrolls was the biggest this year and exceeded all estimates
in a Bloomberg survey of economists, a Labor Department report showed Friday.
The key highlight
of the report was the non-farm payrolls number. It jumped 271,000 in October,
far more than the 183,000 consensus expectations and was a clear negative for
gold prices.
A
better-than-expected payroll and hourly earnings number caused the dollar index
to spike, which further pushed the gold prices down.
The surprisingly
strong U.S. payrolls has had a big impact on FOMC rate hike expectations,
sparking a new rally phase for the U.S. dollar against many currencies,
including gold.
The
marketplace deemed the report as positive and has prompted strong selling in the
gold market, as investors do not see a 2015 rate hike as far-fetched.
Federal
Reserve chairwoman Janet Yellen has stated that 4.9 percent is the Fed’s
estimation for full employment and reiterated before the report that she would
prefer to raise rates by December.
Earlier
this week, Yellen said a December rate hike was a “live possibility” and the
policy-board would raise the federal funds rate if the data was sufficient.
This
has intensified the speculation for a December rate rise and has pressured gold
prices lower, with the shift in safe-haven buying probably adding further
downside.
The
Fed hasn’t lifted interest rates since 2006, but dovish members see low
inflation as sufficient reasoning to hold-off until 2016.
Traders watch the monthly U.S. jobs report most closely as
they try to gauge whether the Federal Open Market Committee might hike U.S.
interest rates yet this year. One more jobs report, for November, is scheduled
for release before policy-makers meet again in mid-December, which will once
again be a crucial factor for raising interest rates in 2015.
The primary purpose of this blog by
Prithviraj Kothari - MD, RSBL, is to educate the masses of the current happenings
in the Bullion world.
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Previous blog -
" Sovereign Gold Bonds Scheme by India & FED Rate Hike - Timing Matters: RSBL!"
http://riddisiddhibullionsltd.blogspot.in/2015/10/sovereign-gold-bonds-scheme-by-india_31.html
" Sovereign Gold Bonds Scheme by India & FED Rate Hike - Timing Matters: RSBL!"
http://riddisiddhibullionsltd.blogspot.in/2015/10/sovereign-gold-bonds-scheme-by-india_31.html
