Gold Jumps After Strong ADP Jobs Data, "Short-Covering" Likely

December 4, 2013

JUMPING to $1229 per ounce in London trade Wednesday, gold defied analyst expectations and reversed earlier 1% losses after stronger-than-expected US jobs data.

Today's private-sector ADP Payrolls Report said 215,000 jobs were added in the US last month, against consensus forecasts of 173,000.

Rising ahead of that number, used by some as an advance guide to Friday's official US non-farm payrolls figures, gold had then fallen $5 per ounce before jumping 0.9% in volatile trade.

Gold "[had] hit a fresh 5-month low in every session this week," says the Reuters newswire.

"Recent short-term stabilisation was much weaker and shorter than expected," says the latest technical analysis from Axel Rudolph at Commerzbank in Frankfurt.

Repeating the same view on silver, "Remains bearish," Rudolph concludes.

"Gold has a decent chance of retesting its 2013 lows sometime in December given all that is going on," reckons Edward Meir at brokerage INTL FCStone, citing this coming Friday's US jobs data and then the Federal Reserve meeting ending Weds 18 Dec. 

"Support is at the major low of $1180 from June 2013," says chart analysis from London market-maker ScotiaMocatta, warning that technical indicators suggest "gold has room to fall further before being hindered by 'oversold' signals."

But "The main risk for gold is a short squeeze," counters ANZ Bank, pointing to the large short position now built up by speculative traders in US gold futures.

Previously peaking in early July, the gross short position in US gold futures and options was quickly unwound as the gold price began a 20% rally from June's 3-year low.

"Comex gold shorts are at a 4-month high ahead of Friday’s US employment data," agrees Walter de Wet at Standard Bank in London, noting the latest US futures positioning figures.

Either that means "disappointing data could very likely trigger large-scale short covering and push gold higher, quickly," says de Wet. Or Friday's non-farm payrolls report "is irrelevant to participants as the majority looks through the noise towards the end goal, i.e. tapering and a slow normalisation of US monetary policy which is coming closer by the day."

Opting for the latter explanation, "Our tactical view remains unchanged for now," Standard Bank's analyst concludes, also citing weak Asian demand for physical gold:

"Sell gold into rallies."

Meantime in India, where gold smuggling has reportedly risen 7-fold on the government's anti-import rules in 2013, "No one is giving us stocks, all of it is going to exporters," complained one Kolkata dealer to Reuters earlier.

Under rules introduced in the summer, 20% of new gold imports must be set aside for re-export.

Indian premiums to the world's benchmark London price today held around $130 per ounce, according to dealers.


Adrian Ash

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash is head of research at BullionVault, the physical gold and silver market for private investors online. City correspondent for Bill Bonner’s Daily Reckoning from 2003 to 2008, and previously head of editorial at London's top publisher of private-investment advice, Adrian is now a regular contributor to many leading analysis sites including Forbes and Gold-Eagle, and a regular guest on the BBC as well as international broadcasters. His views on the gold market are frequently quoted by the Financial Times, Daily Telegraph, MarketWatch and many other leading new outlets.


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