Gold unsure following employment release

The forecasted modest growth in US payrolls turned out to be quite modest indeed; only 36,000 positions were created in January, as against the anticipated headline number of 140,000 offered by economists during the earlier part of the week. The better news, embedded within the US Labor Department’s statistical release, was the fact the US unemployment declined by 0.4% since December, to reach 9% – the lowest since April of 2009.

For comparison purposes, Canada’s job market swelled by 69,000 positions in January, but its unemployment rate climbed to 7.8% (a gain of 0.2%). The Canadian job creation news boosted the loonie, but, surprise, the US release helped the US dollar punch out its own (thus far) modest gain and sapped the strength with which gold rebounded on Thursday, for reasons as yet not quite clear.

The yellow metal briefly retreated to under $1,350 an ounce following the Labor Department announcement, after first spiking higher on the news. Following that dip, it bounced back towards $1,355, once again. Then, after that, it was back down to $1,350, once more. And, following that set of gyrations, it was…back up again, nearing the $1,360 area. Do the (chart) wave, shall we?

While some (okay, most) of the above sounds counterintuitive, the oscillations in various markets that were noted in the wake of the jobs data are no less perplexing than the ones witnessed yesterday. Following a series or mostly encouraging words on the economy uttered by Mr. Bernanke and following the announcement by Mr. Mubarak that he will not seek re-election, gold spiked to above the $1,350.00 level while the US dollar gained significant ground. Chalk it up to (hedge) fund play or try to fit explanations later, while parsing headlines. Way to go.

More than likely, what we have here is a classic case of the specs reading that which they think they’d like to see in the news. For instance, while Mr. Mubarak did offer to go “bye-bye,” he also suddenly came down with a case of the “waffles” and noted that leaving “now” (as in: the “NOW” that demonstrators are demanding) would be “premature” and that it would throw Egypt into “chaos” (something it is not in, right now, according to the man’s line of flawed thinking).

Which part did the markets focus upon? Depends who is being asked, and at what time of the day. As of this morning, the US is said to be “helping” Mr. M make up his mind as to just when to “exit, stage left” – as in: the sooner, the better.

The same can be said about the US jobs/jobless figures. Some wanted to run away with the 36,000 figure and declare that we are back to that proverbial square bearing the digit 1. Others, seeing that overall unemployment headed in the opposite direction of what had been factored into the equation, (70 economists offered a median estimate for 9.5% US unemployment to be the reality in today’s numbers) chose to run with that number, instead.

Some offered the horrible weather as the possible explanation of why January did not result in the creation of six-digit-large jobs numbers. Others, pointed out that, awful winter conditions notwithstanding, Americans found the time to go shopping and help major retail chain stores post a hefty gain of 4.2% in sales last month. Take your pick, as they say.

All in all, we can only count the makings of a nice, volatile, unpredictable day in the markets. How about a $33 range in gold, a $1.04 range in silver, a $36 swing in platinum, and a $24 dance in palladium? They were on display since last night. Enjoy the ride. If you have the money, that is.

Someone who obviously did not enjoy January’s “ride” in gold (and lost SOME money in the process) was the Ruffer Investment Company (RIC); it took a bit of a ‘haircut’ and saw its NAV to fall 1.6%. Its principals will maintain a gold position in the fund; however they now see the metal as providing less than shiny future performance and feel that inflation-linked bonds might do the (inflation-fighting) trick better. Memo to shareholders: ‘In the late 1970s, when gold was a terrific investment, government issues of inflation-linked bonds did not exist, and these are a more effective way of playing high inflation than gold. The second best way to play a phenomenon rarely goes to the moon.’

As for the need to buy sizeable loads of either inflation fire-extinguisher device, well, at least Mr. Bernanke appears far from being convinced that there is a need to do so at this time. A surge in global food and energy prices has prompted calls for sharply rising inflation rates from certain quarters. We’d have to disagree with two nuances contained in this theme; a), that potentially high future food prices will be at all supportive for gold (quite the opposite: one might have to sell a bit of bullion to keep eating) and, b), that The Fed’s easy money policy has not contributed to speculators inflating food and energy (and metals) prices, even if Mr. Bernanke opines that “some of the emerging markets are facing inflationary pressures because their own economies are growing perhaps even faster than their capacity.”

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