Gold Tumbles as Market Speculates Anew on Fed Taper
By: CNBC With Reuters
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Gold was battered anew on Friday,
dropping more two percent on the day after U.S. jobs data fanned
speculation that the Federal Reserve's stimulus tapering might come
sooner rather than later.
Unemployment steadied at 7.6 percent for the month, as nonfarm payrolls grew by 195,000, according to a closely watched Labor Department report Friday. Economists expected 165,000 more jobs and a decline in the unemployment rate to 7.5 percent.
Speculation over the direction of Fed policy has been feverish. The better-than-expected jobs figures prompted bullion traders to sell precious metals in anticipation of an eventual end to the central bank's $85 billion monthly bond purchases — the prospects of which has already triggered turbulence across major asset classes worldwide.
(Read More: Europe Closes Higher on ECB, BoE Guidance)
Gold posted its biggest quarterly loss on record, down 23 percent in the April-June period. Selling was exacerbated by comments from Fed Chairman Ben Bernanke last month that the U.S. economy was recovering strongly enough for the central bank to begin tapering in the next few months.
That would support a rise in interest rates, making gold less attractive.
"We have a forecast for a strong non-farm number (180,000) and if we prove right on that there could be some further downside in store for gold, because that would suggest that although rates are set to stay at record lows in Europe, that may not be the case in the United States," Danske Bank analyst Christin Tuxen said.
(Read More: Gartman's 'Watershed' Shift on Gold)
Spot gold dropped 2.5 percent to $1,221 an ounce this morning. U.S.gold futures for August were down $30 at $1,221.
The metal posted a 5 percent drop last week, when it fell to its lowest since August 2010 at $1,180.71. It then staged a rebound, helped by traders forced to cover short positions at the beginning of the week.
Unemployment steadied at 7.6 percent for the month, as nonfarm payrolls grew by 195,000, according to a closely watched Labor Department report Friday. Economists expected 165,000 more jobs and a decline in the unemployment rate to 7.5 percent.
Speculation over the direction of Fed policy has been feverish. The better-than-expected jobs figures prompted bullion traders to sell precious metals in anticipation of an eventual end to the central bank's $85 billion monthly bond purchases — the prospects of which has already triggered turbulence across major asset classes worldwide.
(Read More: Europe Closes Higher on ECB, BoE Guidance)
Gold posted its biggest quarterly loss on record, down 23 percent in the April-June period. Selling was exacerbated by comments from Fed Chairman Ben Bernanke last month that the U.S. economy was recovering strongly enough for the central bank to begin tapering in the next few months.
That would support a rise in interest rates, making gold less attractive.
"We have a forecast for a strong non-farm number (180,000) and if we prove right on that there could be some further downside in store for gold, because that would suggest that although rates are set to stay at record lows in Europe, that may not be the case in the United States," Danske Bank analyst Christin Tuxen said.
(Read More: Gartman's 'Watershed' Shift on Gold)
Spot gold dropped 2.5 percent to $1,221 an ounce this morning. U.S.gold futures for August were down $30 at $1,221.
The metal posted a 5 percent drop last week, when it fell to its lowest since August 2010 at $1,180.71. It then staged a rebound, helped by traders forced to cover short positions at the beginning of the week.
The Two Sides of Gold: Bull vs. Bear
Mark Keenan, Cross Commodity
Research Strategist at Societe Generale and Anthem Blanchard, CEO,
Anthem Vault discuss their outlooks for the precious metal.
The dollar
rose nearly 1.5 percent against a basket of major currencies, bolstered
by weakness in the euro after the European Central Bank and Bank of
England said interest rates would stay low for an extended period.
After leaving its key interest rates unchanged on Thursday, the ECB said it may yet cut them further, responding to turbulence caused by the Fed's exit plan.
In other markets, the benchmark 10-year U.S. Treasury yield rose above 2.5 percent.
As gold pays no interest, the rise in returns from U.S. bonds and other markets is seen as negative for the metal.
After leaving its key interest rates unchanged on Thursday, the ECB said it may yet cut them further, responding to turbulence caused by the Fed's exit plan.
In other markets, the benchmark 10-year U.S. Treasury yield rose above 2.5 percent.
As gold pays no interest, the rise in returns from U.S. bonds and other markets is seen as negative for the metal.
Under Pressure
| Name | Price | Change | %Change | Volume | ||
|---|---|---|---|---|---|---|
| GOLD | Gold | 1213.20 | | -38.70 | -3.09% | 154359 |
| GOLD/USD | Gold / US Dollar Spot | 1210.70 | | -38.49 | -3.08% | --- |
| SILV/USD | Silver / US Dollar Spot | 18.80 | | -0.71 | -3.64% | --- |
| SILVER | Silver | 18.74 | | -0.96 | -4.87% | 37033 |
| PALL/USD | Palladium / US Dollar Spot | 667.75 | | -6.75 | -1.00% | --- |
| PLAT/USD | Platinum / US Dollar Spot | 1308.25 | | -30.25 | -2.26% | --- |
Rapid
outflows from gold exchange-traded products (ETPs) and
softer-than-expected physical demand were also keeping gold prices under
pressure.
(Read More: Brighter Jobs Picture to Tip Fed Taper?)
Gold ETPs holdings fell by $4.1 billion in June and $28.2 billion year-to-date, according to data from BlackRock.
Indian consumption has fallen since the government imposed new import restrictions, while Chinese buyers are waiting on the sidelines for prices to fall further, or at least stabilize.
"Chinese premiums are holding up and we expect them to be strong buyers if we get a dip back below $1,200," ANZ analyst Victor Thianpiriya said.
Silver fell 2.6 percent to $19 an ounce. Platinum was down 0.2 percent to $1,335 an ounce and palladium dropped one percent to $668 an ounce.
(Read More: Brighter Jobs Picture to Tip Fed Taper?)
Gold ETPs holdings fell by $4.1 billion in June and $28.2 billion year-to-date, according to data from BlackRock.
Indian consumption has fallen since the government imposed new import restrictions, while Chinese buyers are waiting on the sidelines for prices to fall further, or at least stabilize.
"Chinese premiums are holding up and we expect them to be strong buyers if we get a dip back below $1,200," ANZ analyst Victor Thianpiriya said.
Silver fell 2.6 percent to $19 an ounce. Platinum was down 0.2 percent to $1,335 an ounce and palladium dropped one percent to $668 an ounce.
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