By Mr. Prithviraj Kothari,MD, RSBL
Christmas seems to have come in early for gold as it finished the week on a
strong note, ending a six-week losing streak and bouncing off a fresh 5
and-a-half year low.
After hitting a 5.5-year low earlier this week, Gold prices prepared to end
Friday's session on a very upbeat note, with the metal up 2% during the day.
The magic move happened despite a relatively in-line November jobs report
that all strengthened the expectations that the Federal Reserve will raise
rates after its monetary policy meeting December 16.
Gold’s rally started in earnest Friday, following the release of November’s
nonfarm payrolls report, which was relatively in line with expectations.
Because expectations of a rate hike are close to fully priced into the
markets, many investors and traders are starting to doubt whether the U.S.
dollar can move higher under current market conditions, prompting them to take
profits in their long U.S. dollar positions.
Good news for gold also came in when the Euro rebounded
over the announcement of a minimum cut in its deposit rate over the disappointing
market by the European Central. The central bank eased its monetary policy,
dropping its deposit rate to negative 0.30% from negative 0.20% on Thursday.
The rebound in the euro, following
the ECB’s monetary easing that was less than expected, pushed the dollar index
down to 97.59, last at 98.30 and that seems to be helping to underpin the
metals.
Markets eagerly awaited the US employment
report that is likely to be the next directional influence on the dollar and
markets generally.
The gold prices recovered after
falling to fresh five-and-a-half year lows during Thursday morning trading
after Asian participants reacted to the strong US job data from the previous
session.
Spot gold was indicated
$1,053.20/1,053.50 per ounce, down $0.80 from Wednesday and off its session low
of $1,046.40, its lowest since February 2010 – market participants largely
expect the US FOMC to increase interest rates this month.
The Bureau of Labor Statistics, on Friday, said 211,000 jobs were created in November,
down from October’s upwardly revised number of 298,000; September's employment
report was also revised higher to 145,000, from the previous report of 137,000.
The report noted that 35,000 more jobs were added in the previous two months as
a result of the revisions.
According to consensus estimates, economists were expecting to see job gains
of 200,000.
Over the past 3 months, job gains have averaged 218,000 per month. As
expected the unemployment rate held steady at 5.0% last month; at the same time
the participation rate was little changed at 62.5%.
As anticipated the U.S. labor market cooled off a little in November after
seeing immense gains in the previous month; however, the job growth still
managed to slightly beat outlooks, according to the latest employment data from
the Labor Department.
It was one of last few data releases
before the Federal Reserve meets in two weeks to decide whether to raise
interest rates and these reports will play a significant role for the same.
This raises expectation that the Fed
has a go ahead signal to increase interest rates on December 16 as long as other
things remain steady globally over the next few weeks.
Yellen has been adamant about
raising rates before the year concludes, citing concerns over an expedited
tightening cycle if the policy-board waits until 2016.
With another two weeks to go before
the Federal Open Market Committee meets to discuss raising rates for the first
time since 2006 the market remains focused on the expected positive impact such
a move might have on the dollar together with the subsequent negative gold
impact. Taking a look at the past four rate hikes we actually find that instead
of rising, the dollar has weakened in the weeks and months following the first
announcement.
While this time round may be
different considering the expected diverging trajectories of the ECB and FOMC
it nevertheless raises the risk of a correction both on dollar longs and gold
shorts. Not least considering the big jump in positioning seen in both markets
during November.
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 -
"Critical Week For Gold: RSBL"
http://riddisiddhibullionsltd.blogspot.in/2015/11/critical-week-for-gold-rsbl.html
