Gold drops following positive jobs report

Precious metals started the new month and quarter off with muted gains as the focus remained intensely (and apprehensively) on the US Labor Department’s report due just ten minutes after markets’ opening time. Spot gold dealings showed a rise of $2.70 per ounce on the bid-side (quoted at $1,434.50), as against a 0.11 rise in the US dollar on the trade-weighted index (to 76.11) and as against a $0.48 gain in crude oil (last quoted at $107.20 per barrel). Silver opened with a three-penny gain and a quote at $37.70 per ounce. Platinum and palladium also advanced this morning, with the former indicated at $1775.00 per ounce (for a rise of $11.00) and the latter quoted at $768.00 per troy ounce, up $6.00 in early New York trading.

Economists’ anticipation was that the US labor market would add about 185,000 jobs in March while unemployment would show a slight rise, back to the 9% mark following a string of months that have shown notable declines in the number of folks out of work. A parsing of such (positive) data has also been interpreted as the possible catalyst for a shift in Fed monetary policy in the months ahead. The actual numbers the Labor Department offered up for consideration on this first Friday of April were: factory jobs up 17,000 in March, and nonfarm payroll up 216,000 (!) – these were much better-than-anticipated figures. Overall unemployment came in at 8.8% (that is a two-year low, folks) – also a significantly better level than had been the consensus expectation.

As a result of the very good jobs report, gold and silver prices immediately headed somewhat lower (at last check, gold was nearly $13 into negative territory, while silver fell 49 cents), while the greenback showed a modest improvement. NASDAQ, S&P, and Dow futures were all higher as well. The US dollar, in fact, traded at a five-week high against the Japanese yen. Still, eye-popping black gold price levels continued to offer some on-going support to the commodities’ complex, at least in early trading action.

April Fools’ Day had actually already started off with modest declines in precious metals in overseas trading following more hawkish utterances by Fed officials. Minneapolis Fed President Narayana Kocherlakota was not fooling around when he told a Wall Street Journal reporter that it is “certainly possible” that the Fed might raise key interest rates by as much as 75 basis points prior the end of 2011. That type of policy reversal would not be treated as a joke by the throngs of carry-traders who have been inebriated on virtually free US dollars since the somber days of 2007 prompted the Fed to make them available.

The head of the same district Fed office where you can see for yourself what that ounce of gold that was bought by panicked investors in 1980, at $850 per ounce, needs to fetch today in order to be able to declare that gold has, indeed, been able to keep up with the pace of US inflation (not a joke; it is $2277.25) stated that:

“If you consider monetary policy was appropriate at the end of 2010...and then you see core inflation go up by 50 basis points over the course of 2011..the usual response that we know from 20 years of thinking about monetary policy (or even more) is to raise the target rate by even more than that increase in observed inflation.”

Mr. Kocherlakota’s verbal signal was the most transparent one yet to emerge from the virtually non-stop string of hawkish Fed posturing on display over the past ten days or so. Even as two of its officials have hedged a bit, practically every district Fed President has now chimed in on the topic of higher rates to come, and have done so in relatively perfect “harmony.” Unmistakably, the US central bank appears to be “prepping” the markets for that which it now appears it must do following the expiry of the QE2 program at the end of June.

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