Gold Rises On Jobs Numbers

On Tuesday the gold price fell on the back of expectations that the government shutdown would be short lived, however this appeared to be forgotten yesterday as gold climbed 3%, and silver 4%, reversing all losses from the day before.

Gold and silver’s spikes came as stocks reversed all of Tuesday’s shutdown gains, Treasury yields fell and the USD weakened as the EUR gained strength. The US Dollar index fell to an eight-month low.

Market participants yesterday reassessed what the shutdown would mean for the US government’s monetary policy. The ADP national employment report yesterday showed that companies had added fewer jobs than had been expected, prompting expectations of no tapering in the near future.

Whilst the market still expect a short lived shutdown, market sentiment may change if it continues into next week. At this point we may see some safe haven buying, which will support gold and silver prices.

The longer the shutdown goes on for the more government spending will be delayed and may reduce growth in the GDP. This is likely to put back any tapering timetable the Fed may have had planned as they await further economic growth. This would be short-term bullish for the gold price.

We are also heading towards the October 17th deadline for the US debt-ceiling. This is arguably more important than the current shutdown issue. A lack of agreement by US lawmakers will be a much bigger event than the budget impasse.

Barclays believe the partial US government shutdown might reduce the chance of a further standoff over the debt ceiling. The current political standoff allows parties to make their case for core policies to be made now rather than mid-month when it comes to the debt ceiling crisis.

With the government shutdown and looming debt ceiling it seems the market has pushed Fed comments to one side. So just in case you were having any withdrawal symptoms from Fed officials making helpful comments as to the direction of the FOMC’s future decisions, I bring you Eric Rosengren, President of the Federal Reserve Bank of Boston. Yesterday FOMC dove Rosengren argued that the economy was not improving as expected so monetary stimulus should carry on for the time being.

Yesterday Fitch downgrade their forecast for the gold price. Whilst the price is currently sat closer to $1300, the ratings agency forecast gold to average $1200 for the remainder of the year and into 2014.

It attributed the low expected price to a lack of industrial demand, it said, “Compared to other commodities the influence of industrial demand on prices is significantly less for gold. Recent values and motives for buying the commodity had been fuelled by the use of gold as a financial instrument and a hedge against inflation.”

Therefore, ““Fitch believes that it is quite possible for the gold price to retest recent lows of USD1,200/oz…the downside of further price declines, and an overshoot, remains a real possibility.”

Silver ETFs impressed
Total assets under management in ETFs rose for the first time in a year, according to ETF Securities yesterday. The second-largest sector inflow was into silver ETPS as investors used the products to bet on the global economic recovery, and others worries about the immediate outlook for the economy.

Malaysia’s gold future
Next week Malaysia’s first gold futures contract will begin trading. The 100-gram, ringgit-denominated contract allows big and small investors to feature gold in their portfolio, according to Chong Kim Seng, CEO of Bursa Malaysia Derivatives Bhd. However the bullion for delivery will be cash settled and benchmarked against the London fixing.

ECB ‘concerned’ over shutdown
Yesterday the European Central Bank meeting resulted in no change, as expected. In the press conference following the announcement Draghi expressed concern over the impact of the US government shutdown on other economies.