UBS and Nomura See Gold Rise Next Week on Fed

Following the release of better-than-expected U.S. employment data early Friday, gold rebounded from one-month lows to above the $1,700 per troy ounce level, lending a boost to the U.S. dollar and prompting speculation over further monetary easing measures expected next week.

Non-farm payrolls increased by 146,000 jobs last month, according to statistics released by the Labor Department on Friday, with the unemployment rate dropping to 7.7 percent from 7.9 percent.

The spot price of gold dropped 0.2 percent to $1,701.60 per troy ounce, rebounding from a one-month low at $1,683.79 as U.S. gold futures for December delivery gained $1.40 to $1,703.20 per troy ounce.

VTB Capital analyst Andrey Kryuchenkov said we’re retracing the losses from earlier as there was an opportunity to move on the lows. He added that the dollar is still the biggest obstacle to gold and if the macro data continues to surprise to the upside the Fed could reconsider what to do with easing.

The U.S. jobs data has been watched closely ahead of the policy meeting of the Federal Reserve next week, during which time the central bank will decide whether to extend Operation Twist or allow the bond-buying program to expire. Many market participants expect the Fed to announce a new round of bond purchasing in order to support a weak U.S. economy.

UBS and Nomura have suggested that gold could rise next week with an announcement of additional easing by the Federal Reserve. Nomura, a research house, noted that gold remains at the same level as during the October meeting of the FOMC, the policy-making arm of the Fed. The same level suggests that gold has not yet priced in any move by the FOMC, which could create a great opportunity for buyers of gold bullion in the event of the announcement of further bond-buying.

Nomura believes there is a non-negligible probability that there will be an easing announcement at the FOMC meeting, but also sees a rise in gold ahead of the meeting regardless of whether additional easing is announced.

UBS said in a note today that expectation of additional quantitative easing next week by the Federal Reserve is not priced into the gold market, so any aggressive move by the Fed would prompt a sizeable response in gold.

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