Gold Price Weighs Disappointing U.S. Employment Data

GOLD PRICE NEWS – The gold price oscillated between gains and losses Thursday morning after several key U.S. economic reports were released.  The spot price of gold initially jumped to as high as $1,574.38 per ounce following the data, but subsequently retreated to $1,558.19 as the U.S. dollar recouped its earlier losses against a composite of foreign currencies.  With today’s fractional drop, the gold price is now down by 6.5% in May and on pace for its fourth consecutive monthly decline for the first time since August of 1999.

Silver turned lower in conjunction with the price of gold this morning, by $0.30, or 1.1%, to $27.65 per ounce.  In doing so, gold’s sister precious metal extended its loss in May to 11.0% and is likely to post its third straight monthly loss.  On a year-to-date basis, the prices of gold and silver returned to negative territory as well, by 0.4% and 0.3%, respectively.

Gold shares also came under pressure alongside the gold price and the broader equity markets on Thursday.  The Market Vectors Gold Miners ETF (GDX) opened higher but quickly reversed to the downside, by $0.55, or 1.2%, to $43.69 per share.  The S&P 500 Index opened near unchanged but later fell by 11.50 points, or 0.9%, to 1,301.82.  Among the large-cap gold producers, two of the largest decliners this morning were Yamana Gold (AUY) and Eldorado Gold (EGO) – which slid by 1.8% to $14.43 and by 1.9% to $11.24 per share.

The gold price initially rallied after two disappointing reports on the U.S. labor market, but was later dragged down by widespread weakness in the broader markets and U.S. dollar strength.  The ADP Employment report showed job additions of 133,000, below the 150,000 consensus estimate among economists.  Weekly jobless claims also came in above the 370,000 level economists were expecting, at 383,000.  In addition, first quarter GDP growth was revised lower to 1.9% from its initial 2.2%.

While U.S. employment data has turned noticeably worse in recent months, it has yet to prompt additional easing measures from the Federal Reserve.  Yesterday, New York Fed President William Dudley stated in prepared remarks that “As long as the U.S. economy continues to grow sufficiently fast to cut into the nation’s unused economic resources at a meaningful pace, I think the benefits from further action are unlikely to exceed the costs.  But if the economy were to slow so that we were no longer making material progress toward full employment, the downside risks to growth were to increase sharply, or if deflation risks were to climb materially, then the benefits of further accommodation would increase in my estimation and this could tilt the balance toward additional easing.”

Going forward, Dudley and his fellow central bankers will be keeping a close eye on tomorrow’s non-farm payrolls report.  Economists are expecting the economy to show a job gain of 175,000 and the unemployment rate to hold steady at 8.1%.

As for the gold price, Standard Bank analyst Walter de Wet wrote in a recent report to clients that “Structurally we remain bullish on gold but clearly misjudged the strength of USD.  We have not seen any change in the underlying fundamental drivers of gold – global liquidity and real interest rates. To us, both still indicates a higher gold price going forward.”

However, de Wet cautioned that “Our FX analysts have adjusted their 3 month Eur/USD target to 1.15. If this is reached, gold denominated in dollars may struggle.”

Analysts at Commerzbank provided a similar outlook for the price of gold.  “In view of the latest negative news from the euro zone, the US currency is likely to gain further against the euro, which should prevent any rise in the price of gold,” the firm stated. “Weak physical demand has also been weighing on the price of gold recently.”