The gold price headed sharply lower on Friday because a strong US non-farm payrolls reading could put added pressure on the Federal Reserve to raise interest rates in the near term.
Gold for April delivery on the Comex division of the New York Mercantile Exchange was last at $1,184.20 per ounce, which is about $12 below where it was before the jobs data was released. Trade has ranged from $1,182.00 to $1,200.00.
US total non-farm payroll employment increased by 295,000 in February and the unemployment rate edged down to 5.5 percent from 5.7 percent, which was significantly better than the forecast for the addition of 240,000 jobs and a 5.6-percent unemployment rate.
In February, average hourly earnings for all employees on private non-farm payrolls rose three cents to $24.78. Over the year, average hourly earnings have risen by 2.0 percent.
Labour reports over the next several months will take on added significance because the Federal Reserve is on the verge of raising interest rates. The current market consensus is that rates will rise in mid-2015 although this is a moving target that will be dictated by jobs and inflation data.
“The better-than-expected US employment report has sent the dollar higher – the dollar index was last at 97.33 – which suggests the market expects it to prompt the Fed to raise rates sooner than later. Gold has sold off accordingly, as have metals generally,” FastMarkets’ William Adams said.
“So this was not a surprising reaction but a lot can happen between now and June so overall we would expect increased volatility in the days and weeks ahead,” he added.
In wider markets, the dollar was 1.26 percent stronger at 1.0890 against the euro, while Germany’s DAX and France’s CAC-40 were up 0.37 percent and 0.23 percent respectively. In Asia, the Nikkei ended up 1.17 percent but the Hang Sang closed down 0.12 percent.
As for the other precious metals, Comex silver for May delivery was down 22.8 cents in price at $15.93 per ounce. Trade has ranged from $15.875 to $16.235.
Platinum futures for April delivery on the Nymex were down $11.00 at $1,169.10 per ounce, while the most actively traded palladium contract was at $823.55 per ounce, up $1.50 in price.
Elsewhere, European Central Bank president Mario Draghi yesterday detailed a new massive and historic 60-billion-euros-per-month stimulus package that will start on March 9.
The ECB also revised its 2015 GDP growth projection higher to 1.5 percent from the 1.0-percent forecast it made in December. It lifted its 2016 estimate to 1.9 percent from 1.5 percent and now sees growth of 2.1 percent in 2017.
“Because it is clearly convinced that its purchasing programme will be effective, it has raised its forecasts for economic growth and inflation in the eurozone. Our economists take a more sceptical view and see potential for disappointment here,” Commerzbank said.
“In our opinion, the ECB may need to extend its purchasing programme beyond September 2016 or increase the scope of its monthly purchases if it is to achieve its targets. This should benefit precious metals, above all gold and silver,” the broker added.
In data today, German industrial production was broadly in line with expectations at 0.6 percent as was EU revised GDP at 0.3 percent, although the French trade balance at -3.7 billion euros undershot the expected -3 billion euros.
(Editing by Mark Shaw)