Saturday, April 5, 2014

Gold rebounds to $1,300 as job report misses expectations


“The Fed will have to keep interest rates low for a considerable period”

Predictions that a disappointing nonfarm-payrolls report Friday would boost gold came true as the yellow metal rose almost 2% and topped $1,300 after the data were released.
Cheerleaders for the stock market and the myth of a robust recovery were expecting a March number of at least 200,000. “CNBC’s Joe Kernan tried to heat up the anticipation even more a minute before the release by exclaiming ‘some of the whispers are expecting a three-handle’ (meaning over 300k jobs),”noted financial blogger Dave Kranzler.
However, with the number coming in at 192,000, the result was “below market consensus, and that’s supporting gold,” Michael Gayed of Pension Partners told Bloomberg. “This is a very crucial number that the Fed looks at.”
On the bright side for the economy, both January and February payrolls were revised higher, but the unemployment rate stayed at 6.7%.
"The numbers are OK, but they are not the boost that the policymakers had been hoping for, so the Fed will have to keep interest rates low for a considerable period of time, and that's what's been supporting gold," Axel Merk of Merk Funds told Reuters.
The question now is how much the unemployment picture can steer the Federal Reserve off its stimulus-tapering course. Earlier this week, Fed chief Janet Yellen delivered a dovish speech, pledging that the bank’s “extraordinary commitment is still needed.” One observer called it “one of the most dovish speeches I have ever read from a Federal Reserve official.”
Nonetheless, Jeffrey Wright of H.C. Wainwright doesn’t think the Fed will reverse its tapering policy, telling MarketWatch: “As far as I can tell, this ship has sailed. [The] FOMC had a chance to restrain [the] taper and chose not to in February and March, with worse data points than an 8,000 miss on jobs. I still expect FOMC to follow through with [its] communicated plan, continue tapering by $10 billion tranches until they are no longer purchasing assets each month.”
That could be bad news for the stock market, which was jolted across the three major indexes Friday. The Nasdaq was down 2% on Friday afternoon for its worst day of the year, and the Dow Jones and the S&P 500 also were in the red.
Pessimism over the health of the stock market is growing despite recent intraday highs. Zero Hedge ran a chart from JP Morgan showing that the S&P 500 is more overvalued than it was in October 2007, before the Black Friday crash, and that the average S&P stock is 6.5% off its highs. Meanwhile, chatter is growing about a stock chart showing an eerie parallelbetween the current five-year-old bull market in the S&P 500 and the one that ended in 1987 with the October crash.
Heading into next week, gold investors are waiting to see whether bullion can build on its gains and hold the $1,300 level, either with a boost from further stock weakness or perhaps from simmering geopolitical tensions in Ukraine, the Koreas, and/or the South China Sea, with a retired Chinese general saying that war with Japan is becoming increasingly likely.
More information can be found online at http://www.goldbullionadvisors.com