Gold Trims Early Losses Posted by Adam King on January 07, 2013
Gold futures trimmed earlier losses following the release of U.S. Labor Department’s unemployment data that came in close to expectations. The price of gold, however, remained in a negative territory on speculation the Federal Reserve may begin slowing stimulus programs in the current year. In Monday trade, the speculation extended losses slightly in the gold market.
U.S. gold futures for February delivery, the most actively traded contract, traded down $5.10, or 0.31 percent, to $1,643.60 per troy ounce. The spot price of gold lost $10.48 or 0.63 percent to $1,645.73 per troy ounce.
The change came in overnight trade as investors bet the Federal Reserve could pull back the current stimulus programs earlier than previously expected. The most recent policy-making meeting of the central bank showed some participants favoring a slowing or a stopping of the current bond-buying program before the end of the current year, according to the minutes that were released after the market closed on Thursday of last week.
Jon Nadler, analyst with Kitco Metals, wrote in a note that this is the first time since 2007’s beginning of the financial crisis that the Fed has finally launched the first signal flare that it will not engage in QE to infinity.
The Federal Reserve’s ultra-accommodative monetary policies have been a driver in the gold market in recent years partially because the efforts stoke concerns about potential inflation. Though the market action is currently downward on the news, the withdrawal of stimulus at some point in the future does not change the dollar amounts the Federal Reserve has already pumped into the system. The inflationary concerns about stimulus are still present and very real based on the five years of quantitative easing we have already experienced and that, more so than any future QE, is a fundamental current driver of the gold market.
Meanwhile, the Labor Department has reported the U.S. economy added 155,000 jobs during the month of December, short of the 160,000 expected by economists. The unemployment rate stood at 7.8 percent, which is the same as November’s upwardly revised figure.
The Federal Reserve announced in mid-September it would keep short-term interest rates near zero and continue bond purchases until unemployment is below 6.5 percent. The unemployment report restored market confidence that fiscal stimulus was likely to continue and the price of gold rebounded modestly.
Kurt Pfafflin, a senior broker with Daniels Trading, said he believes this is an overreaction, speaking of the day’s losses in the gold market. He continued by stating he did not expect the Fed’s easing efforts to end any time soon and that low interest rates may continue to send investors looking for a higher yield into gold.