Gold Prices Sink After Spike in January Jobs (Update 3)

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NEW YORK (TheStreet ) -- Gold prices ended Friday with a thud after the U.S. reported a positive January jobs report.

Gold for February delivery closed down $19 to $1,740.30 an ounce at the Comex division of the New York Mercantile Exchange and were continuing their declines in after hours trading. The gold price has traded as high as $1,765.90 and as low as $1,735.50, while the spot gold price was sinking $30, according to Kitco's gold index.

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Silver prices lost 42 cents at $33.74 an ounce. TheU.S. dollar index was slightly higher at $78.98.

Gold prices fell Friday as investors rotated out of the metal and into stocks after a killer jobs number. The number beat expectations with the private sector adding 257,000 jobs and with the unemployment rate falling to 8.3% while the labor force participation rate stayed firm, which means the decline in the unemployment rate was due to more actual hiring.

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The dollar strengthened as the outlook for the U.S. economy brightened and it was also given a lift by a weaker euro as rumors started to swirl that Greece's prime minister might resign as the country is trying to secure its second bailout. The stronger currency weighed slightly on gold.

In addition, the good reading might ease pressure on the Federal Reserve to try to pump more money into the system through another round of quantitative easing, or QE. Although Fed chairman, Ben Bernanke, reiterated his commitment to low rates until the end of 2014 Thursday at a House Budget Committee in Washington, the better job data might prevent additional monetary easing, which would have been good for gold.

Oliver Pursche, co-portfolio manager of the GMG Defensive Beta Fund, didn't think that the jobs number had a meaningful impact on precious metals. It was a "non mover," he said attributing the price decline to profit taking as investors opted for stocks.

"The gold story right now is watching some of the global inflation numbers, the better-than-expected strength out of China and the physical demand as a whole," he said. Technically, Pursche said gold still has more room to go. "It can probably still go up a couple of percentage points," he said.

David Morgan, founder of Silver-Investor.com, says "Fridays are the squaring of books anyway. A lot of the professional traders don't carry any positions over the weekend." Morgan says gold has a wide range of $1,650-$1,750 and thinks that gold could slide below the $1,700 level.

In the meantime, resurfacing Asian demand is helping to support prices. Nigel Moffatt, treasurer and manager at the Perth Mint Depository, noted no real change in demand from China yet as the country returned this week from a week-long holiday, but said Indian demand is starting to improve.

"India has started to take some metal in," he said. The country lowered the amount of money banks have to keep in their reserves and officials from the Reserve Bank of India indicated they would cut interest rates once inflation slowed, which is still more than 9%.

"A stronger rupee since the beginning of the year is helping to offset the high price of gold in U.S. dollar terms," said James Steel, analyst at HSBC. The recent week-long rally in the gold price could "reduce buying to a trickle," warned Moffatt, but he noted solid demand from other Asian countries like Thailand as well as coin demand from the U.S. and Europe.

Despite U.S. headlines taking front and center stage Friday, Jon Nadler, senior analyst at Kitco.com, said he still thinks that Europe is the biggest factor moving gold.

"Europe is showing all the signs that the credit contraction is under way," said Nadler, who is worried about a prolonged recession. "I would certainly want to see some real strong steps out of Europe before I would take on more risk again and buy more stocks and gold and so on."

If gold can surpass $1,803-$1,805 on a closing basis, gold would be "poised for new highs," said Nadler. But he is more concerned about "mattress money scenarios" where people stop buying all assets as risk appetite dies out altogether in an event of a steep global slowdown.

Gold mining stocks were weaker Friday. Kinross Gold was down 1.68% to $11.20 while Yamana Gold was shedding more than 3% at $17.14. Other gold stocks, Agnico-Eagle and Eldorado Gold were trading significantly lower at $36.36 and $14.70, respectively.

--Written by Alix Steel in New York.

>To contact the writer of this article, click here: Alix Steel.

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