Gold Prepares for Possible Largest Two-Day Fall Since August Posted by James Randolph on October 08, 2012
The spot price of gold dropped on Monday, preparing the largest two-day fall in
two months follow the release of last week’s U.S. employment data which gave a boost
to the U.S. dollar, although long-term investment demand in the precious metal remained
The key U.S. job’s report released on Friday indicated that the U.S. economy
created more jobs than were expected as the jobless rate dropped by a surprisingly large
margin, spurring an optimistic sentiment in markets over the economic forecast in the
The spot price of gold dropped 0.6 percent on the day to $1,770.10 per troy
ounce, a continuation of Friday’s 0.5 percent drop. The spot price indicates the precious
metal is prepared for a greater than 1 percent decline over the past two days, which is the
biggest two-day drop in the market since August.
Citigroup analyst David Wilson said that if we get slightly better U.S. data going
forward, which would give more support for the U.S. economic recovery, we get a
stronger dollar. He cites the concern in Europe, saying that obviously Europe continues
to struggle and that would suggest that the rally is done for the time being, although he is
careful to point out gold may see more upside further out.
The Federal Reserve announced in September that it would purchase $40 billion
a month in mortgage-back securities in order to keep the cost of borrowing low and keep
credit flowing in the economy and that it would continue the program until the labor
The unexpected growth in the labor market then translated into a stronger dollar
against a basket of currencies on Monday, according to Reuters.
UBS analyst Edel Tully said in a note that although gold has lacked the appetite to
overcome $1,800, both Friday’s reaction and recovery post (job’s data) highlighted that
sellers lack conviction while buyers are prepared to step in during pullbacks. Tully adds it
is clear that the buying momentum evident last month has undoubtedly slowed down.
This doesn’t help gold break $1,800, according to Tully, but it surely highlights
that there is little conviction to get out, even if the data isn’t supportive. This highlights
gold’s supportive backdrop, in Tully’s analysis.