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

December 5, 2013

The PRICE of gold fell hard Thursday lunchtime in London, giving back all of yesterday's sudden 3.1% jump to trade back at $1223 per ounce after stronger-than-expected US economic and jobs data.

European and US stockmarkets fell marginally after the Bureau for Economic Analysis revised its GDP estimate for the third quarter of this year up to 3.6% annual growth, well beating analysts' 3.0% forecast.

Ahead of Friday's Non-Farm Payrolls data for November, last week's claims for initial jobless insurance then came in below 300,000 for only the second time since 1997.

Gold had already ticked lower from Wednesday's jump to $1250 per ounce, but then fell swiftly.

Silver held onto a chunk of yesterday's 5.1% gain, but also traded sharply lower, falling to $19.30 per ounce.

Neither the European Central Bank or Bank of England made any changes to their record-low interest rates, lending or quantitative easing at their December meetings today.

Wednesday's action "formed an outside day reversal warning," says ScotiaBank's technical analysis, with gold hitting a new 5-month low but ending US futures trading sharply higher.

"However, as the daily trend remains bearish, the signal would have to be confirmed by an up day [on Thursday]."

Following what Commerzbank's commodity team calls "a sharp reversal immediately" on the release of yesterday's much-better-than-expected US jobs data from the private ADP payrolls service, "a short covering rally ensued" it says, with bearish traders betting on lower prices forced to close their positions as the market rose.

Ahead of Friday's official US jobs data, "The markets are still positioned quite short," reckons ANZ Bank analyst Victor Thianpiriya, quoted by Reuters.

"There is going to be a bigger reaction to a weaker-than-expected nonfarm payrolls report than to stronger-than-expected numbers."

Looking further ahead, "Tighter monetary policy in the US and rising rates are hanging over the market," said a note from Bank of America-Merrill Lynch analysts this week.

"[That] could push gold towards $1100 per ounce in 2014," it believes.

"Yet while the pause in the bull market may continue, we see several encouraging signs, most notably physical demand from emerging markets, that suggest...gold remains a sound medium-term investment."

But "we are seeing continued outflow of gold investment holdings," counters one Singapore trading desk in a note, "and the physical demand from Asia seems insufficient to halt gold's decline."

Gold achieving "a successful hold above $1180 would...be the best case scenario amidst mounting bearish pressure," it adds.

India's DNA news-site meantime says half-a-tonne of gold is being smuggled into the country each day, citing "top officials" at the Directorate of Revenue Intelligence.

"Contrast this 15 tonnes per month with finance minister P.Chidambaram's target of 20-25 tonne [of legal] imports," says DNA.

 

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.

 

The world’s gold supply increases by 2,600 tons per year versus the U.S. steel production of 11,000 tons per hour.

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