Gold to Eight-Week Low Following U.S. Jobs Data

Gold dropped to an eight-week low in Friday trading as the U.S. dollar jumped in value following the release of data indicating a higher-than-expected rate of creation in the U.S. labor market. The U.S. jobs report, released at 8:30am EST on Friday, is the last major signal regarding the status of the American economy before the U.S. presidential elections next Tuesday, November 6.

The payrolls data indicated an increase of 171,000 jobs in October by employers against the forecast of 125,000. The jobless rate met expectations at 7.9 percent.

The U.S. dollar hit a seven-week high in the run up to the release of the data, climbing against the euro to a rate of $1.2857.

The spot price of gold reached $1,695.65 per troy ounce, a decrease of 1.42 percent, after touching an eight-week low at $1,692.19 per troy ounce following the release of the data. U.S. gold futures for December delivery dropped $20.00 per troy ounce to $1,695.50.

Afshin Nabavi, head of trading at MKS Finance, said the dollar got a boost on the upside, and so gold saw some long liquidation and some stops were hit.

Nabavi added that he expected $1,690 to be a key support level in the near term with resistance in place at $1,700. Ahead of the U.S. election the market will be nervous and undecided, so we should have volatile trading until Wednesday morning, he concluded.

The Federal Reserve, in its announcement of the latest incarnation of quantitative easing, tied its scope to the health of the U.S. labor market, making the regular jobs reports one of the most important economic indicators we have in understanding market direction. The stimulus announcement sent gold on an initial surge to over $1,795 per troy ounce in the month of October.

Monetary stimulus is well known to be beneficial to precious metals markets because they fuel long-term inflationary fears while maintaining pressure on interest rates, which makes gold a very good holding.

The jobs report released today that indicates a labor market that beat expectations, albeit on an adjusted basis with an unemployment rate still at 7.9 percent, has had the expected effect of a hiccup in the gold market, with prices down 1.42 percent.

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