Gold Prices Settle Higher on Jobs Reading; Silver Hits 31-Year High

By Alix Steel
THE STREET

NEW YORK (TheStreet ) -- Gold prices rose after an expectation-meeting U.S. jobs report and a double digit selloff on Thursday. Silver also tapped a 31-year high.

Gold for April delivery added $12.20 to $1,428.60 an ounce at the Comex division of the New York Mercantile Exchange. The gold price today has traded as high as $1,432.80 and as low as $1,413.80. The spot gold price was adding $13, according to Kitco's gold index.

Silver prices added $1 to $35.32 an ounce. U.S. dollar index was slightly lower at $76.38.

Gold prices had been awaiting the nonfarm payroll report for February and picked up steam after the solid, but not blowout, results. Nonfarm added 192,000 jobs and the private sector added 222,000 jobs. Both numbers were in line with expectations. The unemployment rate fell to 8.9%.

The good news was already baked into the stock market and equities took a hit on the buy the rumor, sell the news trading strategy. Gold prices suffered Thursday in anticipation of solid numbers and were regaining ground Friday.

A better-than-expected reading might have raised speculation that the Federal Reserve could either alter its $600 billion bond buying program or raise interest rates if the jobs picture continues to improve.

A disappointing reading would have underscored the need for low interest rates for an "extended period of time" despite rising overall inflation and perhaps prompt another wave of safe haven buying.

The news was in-line, however, which would leave the status quo of bond buying and low rates in tact, both of which are good for precious metals.

Gold prices had also retreated 1.7% from their record intra-day high of $1,441 an ounce, which was attracting bargain hunters and traders who missed the recent rally. Also, on a weekend where anything can happen in the Middle East, traders would be more reluctant to be short gold and silver.

"The perfect storm continues ... with higher volume, higher open interest and higher moving averages, as buyers emerge who sold previous long positions and no one wants to be short for the weekend," says George Gero, senior vice president at RBC Capital Markets.

"I think [gold's] still open to taking out new highs .... A potential further $100-$130 gain is not to be excluded," says Jon Nadler, senior analyst at Kitco.com. "Before we can push to new highs we have to have fresh problems out of Libya. Baring those, we could correct deeper."

Nader said gold is taking its cue from a weak dollar and high oil prices, which hit its highest level in two-and-a-half years, with the $1,400 level as a "bargain hunting area" for gold while silver could see another move higher by as much as $1 to $1.50. Nadler warns that any retest of the $31.50 level, however, could prompt a "sizable correction" in the silver market.

The gold bears will point to comments from European Central Bank president Jean-Claude Trichet Thursday that the central bank might raise interest rates as early as April. Although Trichet did say this move was not guaranteed, the eurozone's 2.4% inflation reading combined with low 1% interest rates is a recipe for concern.

Real interest rates in the Eurozone, at these levels, are negative 1.4%. Rates would have to rise big and fast to combat this rate environment.

"For all Trichet's tough talk ... he's no Charlie Bronson. Raising rates to a mere 100-bp below inflation is a long way from 'vigilant,'" says Adrian Ash, head of research for BullionVault.com. Credit woes out of the EU are also far from over. Fitch revised Spain's outlook to negative, while maintaining a double A credit rating.

Investors turn to gold when rates are negative because the hard asset is worth more than paper money and any cash kept in the bank. If rate hikes got aggressive enough to turn the rate environment positive, the worry is that gold could see some headwinds.

Ash argues, "short of regime change at the Fed, Bank of Japan, ECB and Bank of England, [Thursday's] selloff in gold is likely to prove a good buying opportunity long term. For now, it clearly shows how much the bull market in gold owes to weak central-bank policy."

Investors in China have been shrugging off any recent rate hikes. UBS(UBS) said in a Bloomberg article that China bought 200 tons of gold in January and February of 2011 and that's not counting all the gold China is producing and keeping in country. The figure just accounts for individual purchases not central bank purchases. For perspective, China bought just over 200 tons of gold in the first nine months of 2010.

Gold mining stocks, a risky but profitable way to buy gold, were mixed. Yamana Gold(AUY) was down 0.39% at $12.81 while Harmony Gold(GG) was up 3.49% to $12.15.

Other gold stocks, New Gold(NGD) and Gold Fields(GFI) were trading at $10.71 and $17.51, respectively.

--Written by Alix Steel in New York.

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