Gold Retreats as U.S. Jobs Data Dims Stimulus Hopes

September 7, 2012 at 11:37

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Gold eased on Friday from a near six-month high hit in the previous session as upbeat data from a struggling U.S. labor market dimmed hopes for more stimulus measures from the Federal Reserve.

Bullion had rushed to its loftiest since early March in the previous session after the European Central Bank unveiled a new and potentially unlimited bond purchase plan to lower borrowing costs of debt-laden nations, in the latest effort to fight the euro zone debt crisis.

But now the market focus is riveted on the key U.S. non-farm payrolls data scheduled for release later in the day, especially after payrolls processor ADP said the U.S. private sector added the most jobs in August since March.

If the ADP figures foretell a strong U.S. August payrolls report it could quash the case for a third round of quantitative easing, also known as QE3, by the Federal Reserve.

“There is definitely long liquidation going on after the ADP number,” said a Singapore-based trader. “People spent the whole of yesterday buying gold and it is a bit overcooked up here. Now we have good data and the market is struggling to see how it can get a bad payrolls data.”

Central bank cash printing raises the inflation outlook and adds to gold’s attraction as a hedge against rising prices.

Technical analysis suggested spot gold could retrace to $1,680 per ounce during the day, market analyst Wang Tao said.

But some analysts believe gold still has room to rise as the U.S. labor market is still weak enough for the Fed to take action.

“We think the payrolls number will be very poor, which should be positive for gold as it would confirm that the Fed will do something at the next FOMC (Federal Open Market Committee) meeting,” said Jeremy Friesen, commodity strategist at Societe Generale in Hong Kong.

SocGen has forecast the payrolls number have risen 70,000 in August, versus a consensus expectation of 125,000 in a Reuters poll.

Holdings of gold-backed exchange-traded funds hit a record high of 72.1 million ounces, or 2,044 tonnes, by Thursday. ETF holdings had gained more than 38 tonnes so far this year, with the majority of increase occurring since August when hopes for stimulus from central banks started to run high.

In Asia’s physical market, dealers continued to report scrap flow as prices remained near $1,700 per ounce.

“We still see scrap flow today and there is even some buying interest crawling back in,” said a Singapore-based dealer.

Silver prices fell 2 percent in spot and futures markets. Spot silver dropped to as low as $31.95 per ounce after hitting a five-month high of $32.98 in the previous session. It recovered to $32.23.

The Relative Strength Index plunged to 72 from the previous session’s 80.452, the highest since April 2011 and suggesting the market was heavily overbought. An RSI reading above 70 indicates the underlying asset is overbought.

Silver remains the top performer in the precious metals complex, up 16 percent so far this year, compared with an 8-percent gain for gold.