Gold quiet following US jobs report

In the Lead: “Payrolls Hit Pay Dirt”

Almost all was quiet on the market fronts ahead of the US Labor Department’s pivotal December report this morning. The euro was still struggling near 15-month lows under $1.28 as yield on Italian ten-year bonds climbed to 7.12% and prompted the ECB to undertake a sortie into the market and buy some Italian and Spanish debt. Banks in Europe are continuing to sit on whatever cash they can get a hold of and they continue to keep such funds in the care of the ECB as opposed to lending it out.

Meanwhile, in a continuation of the ratings derby to the downside, Fitch’s Rating took the scissors to the rating of Hungary and trimmed it to the BB level. The fear remains pervasive and the state of suspended animation continues to plague regional investors. The common currency is on course to notch its fifth weekly decline against almost all of its rivals and gold fans must not lose perspective of that stark reality especially given the recent pattern of tandem gold-euro trading we have all witnessed.

There is also another potential threat that at least parts of the EU – if not the whole region – are now facing. The agreement in principle to ban Iranian oil imports is making for a situation whereby crude prices could spike back to record highs not seen since 2008 and whereby Europe’s economic woes could be seriously aggravated. Consider Greece, for example. The country imports 30% of its oil from Iran. Italy would be similarly vulnerable and the current threat of a mild recession could turn into Europe’s nightmare scenario if a quarter million barrels of Iranian black gold do not make it to the region. Saudi Arabia has promised to plug any gaps that the supply of oil might experience in the event the import ban comes into existence.

Well, the US jobs report certainly did not disappoint this morning. America added 200,000 jobs last month and the country’s overall unemployment rate fell to 8.5%. To be sure, the growth in positions was not the result of a quarter million mall Santas walking the halls of US shopping centres. The Labor Department’s numbers actually indicate that as many as 212,000 jobs were added to the private sector if we were to take out a shrinkage in the number of government positions. Last year, 1.64 million jobs were created in the USA. There are schools of economic though however that estimate that “full employment” these days anyway, might be in a broad range of from 4.5 to 7 percent. By that metric, the shaving of another 1.5 percentage points from America’s current joblessness might go a long way towards satisfying a very important target.

This morning’s figures remain some distance from what certain market observers feel is needed for the US economy to be on course to make a serious dent into its unemployment level. If the American job market is to be perceived as growing at a robust enough pace, then it is thought that it must add roughly 350,000 positions on a monthly basis as we go forward. There are some signs that the trend is headed into such a direction, certainly if one looks at the country’s automotive sector as well as its private sector. The recent and decent growth in America’s GDP could be the support factor that the job market really needs at this juncture and the hope is that Europe’s travails do not become the “X” factor that could derail recent US growth patterns.

As mentioned in previous articles, the Fed is embarking on not only new communications policies as we head into 2012 (regular press briefings, the disclosure of Fed officials’ interest rate projections) but perhaps also on something else that matters to the markets and to its growing body of watchers; inflation targeting. It appears now that the Fed is but one step away from stating an explicit numerical target for US inflation levels. While the targeting of a certain inflation threshold is achievable, the Fed’s other mandate (employment levels) might be a ‘taller’ order to fulfill. Anyway, the added transparency that the Fed is signing up for has at least partially and temporarily quieted some of its most vocal critics. It appears they are more preoccupied with winning public support for their campaigns to be elected Chief Executive than with the abolition of the US central bank…

Gold prices opened on the nervous side this morning but eked out an 80-cent gain to start the final session of the week at $1,622.20 per ounce. The dollar’s current strength (it is trading near one year highs) is continuing to hold gold back from convincingly surpassing the $1,633 (200-DMA) resistance area and from trying to aim for at least $1,700 or so given the geopolitical tensions at hand. London-based Sharps Pixley notes that the “firmer dollar (in election year) could provide a drag on runaway gold prices.”

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