By Neils Christensen of Kitco News
Friday July 5, 2013 10:23 AM
(Kitco News) - A stronger-than-expected U.S. employment report was the latest headwind to hit gold Friday, and as a result, analysts are expecting to see lower prices in the near term.
The government reported an increase of 195,000 jobs in June, when expectations were for 155,000 to 166,000. Further, the tallies for the previous two months were revised higher. With the revision, June’s job report showed that the U.S. economy created about 100,000 more jobs than economists expected, said Peter Buchanan, senior economist at CIBC World Markets.
As of 10:14 a.m. EDT, August gold was down $40.70 to $1,211.20 an ounce; one minute before the report was released, the contract was trading at $1,241.
“There is just no reason to be long gold right now,” said Sterling Smith, futures specialist with Citi Institutional Client Group.
Although the jobs report was positive, Smith said he doesn’t think it will be enough to force the Federal Reserve to cut back on its $85 billion monthly bond-purchase program right away. He said he could see the Fed waiting to see at least two more jobs report and then perhaps act in November.
Buchanan said he expects the Fed will begin to taper in October. While the employment numbers were better than expected, he said some of the other data points haven’t been as strong as expected.
For now though, both analysts expect that the markets will continue to price in an exit strategy sooner than later, which will be negative for gold. Smith said in the short term, gold could test support at $1,000 an ounce.
“Can we go lower than that? We certainly can,” he said. “If you are looking for good news in gold, you are holding onto fairy tales and hope. Right now, the market is caught in a bear trend.”
Michael Widmer, metals strategist for Bank of America Merrill Lynch, agreed that prices could hit $1,000 if the U.S. economy continues to pick up and interest rates continue to move higher.
“There isn’t a lot in favor for gold right now,” he said. “Growth is picking up and we don’t have any signs of inflation.”
Adding to the gold’s weakness is the strong U.S. dollar, which not only jumped Friday after the jobs report but rallied significantly on Thursday after the Bank of England and the European Central Bank released dovish monetary policy statements.
By Neils Christensen of Kitco News firstname.lastname@example.org