Gold Market Wrong-Footed in Thin Trade by Shock Fall in US Payrolls

Gold Prices dipped, bounced and then fell back again from a four-day high early Friday on news that US job losses exceeded expectations last month.

Non-Farm Payrolls for March showed a loss of 80,000 jobs vs. Wall Street forecasts of 50,000 cuts. Even the ever-bearish Briefing.com had penciled in only a 70,000 fall.

But within 15 minutes of the Bureau of Labor Statistics adding that US unemployment rose for the third month running to a new three-year high of 5.1%, the Gold Price had dropped back to the bottom end of the day's trading range.

The Euro, Yen and Sterling also spiked and then dropped. European equities cut their gains for the day.

"US non-farm payrolls data are important for the Gold Market, especially after yesterday's [worse than expected] jobless numbers," noted Simon Weeks, head of precious metals dealing at Bank of Nova Scotia, before the payrolls report was released.

"Gold still has room for more correction, but may stabilize if the Dollar remains weak."

But Gold Prices already looked vulnerable in thin London trade. The better-than-expected ADP Employment Report – often a good indicator of the official non-farm jobs data – said on Tuesday that private US payrolls added 8,000 jobs last month.

It had been slated to show a 45,000 loss. Gold Prices sank to a two-month low of $875 per ounce on Tuesday's news.

"Following the surprise 8,000 unit increase in employment reported on Tuesday," says today's Gold Market note from Standard Bank, "US initial jobless claims rose by 38,000 [in Thursday's data release] to 407,000, 11.2% higher than expected."

Meantime in Asia today stock markets fell for the first time in three days while US crude oil gained 90¢ to $104.73 per barrel.

Base metals were mixed, and soft commodities rose across the board, as Tokyo Gold Prices for Feb. '09 delivery ticked above ¥3,000 per gram, recovering Monday's opening level as the week ended.

Gold priced in Yen still stands 10% below the 25-year peak of early March, however.

The British Pound briefly touched a one-week high to the Dollar above $2.00 this morning, capping the Gold Price in Sterling at £453 per ounce in London before surging to $2.050 and then falling one cent lower inside 10 minutes.

French and German investors looking to Buy Gold today also found price little moved by the jobs data, holding just above €576 per ounce the Euro first spiked and then swiftly retreated from a new four-day high of $1.5770.

The European single currency had already recovered most of the week's early plunge on news that German factory orders in Feb. – while lower from Jan. – rose 9% from the same month in 2007.

Added to this week's new 16-year high in Eurozone inflation, that looks likely to keep interest rates on hold at the European Central Bank.

Whereas the likelihood of the US Federal Reserve following up its 300-basis-point cuts to Dollar interest rates with further cheap money only grew on the weak jobs data.

"The US labor market data leads often to the widest swings in financial markets, which would also have a strong impact on gold and other precious metals," said a report from analysts at Dresdner Kleinwort early Friday.

"Gold [was] expected to profit from a higher-than-predicted fall of payrolls."

But in the end only Treasury bond prices rose, pushing yields lower after interest-rate traders had cut the odds of a sharp fall in the Fed's key lending rate on Thursday.

"Monetary and fiscal policies are in train that should support a return to growth in the second half of this year and next year," said Bernanke in testimony yesterday to the US Senate Banking Committee.

Fixed-income traders took this to mean a promise of better growth and so "the market priced out some of the rate cuts that were there a few weeks ago," according to Piet Lammens at KBC Bank in the Netherlands.

The Fed shows little concern for inflation, however, and this week's growing consensus that Ben Bernanke's team are done cutting rate ignores the 1% "emergency low" reached during the much milder deflation panic of 2001-2004.

At its current lending rate of 2.25%, the Fed is offering cash savings sharply way less than the latest rate of consumer price inflation, reported at 4.3% in Feb.