2011-12-02

Non-farm payrolls data misses expectations the gold price would likely stand to benefit

The gold price held steady Thursday, trading up $1.90 at $1,748 per ounce. Gold prices showed a muted response to the news that jobless claims climbed by 6,000 to 402,000 – a figure slightly worse than market expectations. The gold climbed $31.15, or 1.8%, yesterday after the world’s leading central banks announced coordinated liquidity measures to aid the European financial system. In doing so, the gold price finished the month of November higher by 1.9% and extended its gain in 2011 to 22.9%.

Central banks from across the globe – including the Federal Reserve, Bank of England, Bank of Japan, and others – agreed to lower the cost of liquidity swaps in order to provide the European banking system with easier access to U.S. dollars. Many banks in Europe have been hit particularly hard by the sovereign debt crisis, and these measures were intended to “ease strains in financial markets,” according to a joint statement by the central banks. The enhanced liquidity measures indicated central bankers’ continued resolve to fighting deflation – a particularly bullish factor for the gold price.

Yesterday afternoon the Fed’s Beige Book revealed that U.S. economic activity increased at a “slow to moderate pace” over the past month. Although consumer spending “rose modestly,” the residential and commercial real estate markets remained weak. Furthermore, the employment market continued to be challenged as “hiring was generally subdued.”

Looking ahead, central bankers and investors will each likely be paying close attention to Friday’s U.S. non-farm payrolls report. While Wednesday’s ADP employment report came in at 206,000 – well above the consensus estimate among economists of 130,000 – the non-farm payrolls data and unemployment report have historically been more significant data points for the financial markets. Although the gold price was able to shrug off the better than expected ADP figure, encouraging data on Friday could present a headwind for the gold. Alternatively, if the non-farm payrolls data misses expectations the gold price would likely stand to benefit.

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