Gold Rips Past $1,270 Before Retreating on Solid ISM Report - Wealth Managers

But Poor ADP Number Could Be Precursor to January Jobs Bust

In a seesaw day of trading, gold zoomed above $1,270 on a mediocre jobs report, then lost ground after more positive data on the U.S. services sector. Still, bullion ended higher Wednesday as the market awaits Friday’s crucial nonfarm-payrolls report from the Bureau of Labor Statistics, the result of which could greatly influence the Federal Reserve’s stimulus policy — and therefore gold and stocks.

Automatic Data Processing’s private-sector jobs report for January, seen as a precursor to Friday’s payrolls number, fells short of expectations, while December’s ADP report also was downgraded.

“A lower ADP employment number immediately translated into a fall in the dollar and a spike in gold,” said Bernard Sin, an MKS SA senior vice president.

However, the push to $1,273 lost steam after a somewhat-contradictory Markit report found that growth in the U.S. services sector hit a four-month high in January and hiring remained robust.

Fed under pressure to taper “taper”

“The ADP number puts a lot of pressure on the official U.S. employment number,” said Jeffrey Wright of H.C. Wainwright. “If this data point does not meet expectations, there is speculation the FOMC could examine the rate of ‘tapering’ or delay the next step down of $10 billion” to the Federal Reserve’s bond-buying program. “Any delay or reduced impact of tapering would be a positive for gold in the coming weeks.”

“It certainly feels as though the markets believe this is foreshadowing a disappointing payrolls number on Friday,” TD Securities said in a note to clients.

Gold up, stocks down in 2014

Stocks, meanwhile, finished in the red again, and the weakness there continues to support gold. “Any significant drop in equities could trigger renewed gold purchases. This is gold’s best chance for a near-term rally,” said HSBC’s James Steel.

Sumit Roy of Hard Assets Investor agreed, writing: “By now, the inverse correlation between gold and stocks is well established. It’s no coincidence that in 2013, gold fell by 29% while the S&P 500 rose by 29%. Since the start of this year, we’ve seen those trends reverse, as gold is up 4% year-to-date while the S&P 500 is down by more than 5%. … 2014 is shaping up to be a much more challenging environment for equities, which will lend support to gold. In our view, the $1,275 resistance level will eventually give way and prices will make a run for $1,400 later this year.”

Gold going “straight up like a moonshot”?

Euro Pacific Capital Peter Schiff is even more bullish. “At some point, gold’s going to go straight up like a moonshot,” Schiff told CNBC. “Maybe it’s going to take Janet Yellen to come out and call off the taper. Or maybe she’s going to have to say, ‘We’re doing more of it, we’re going to start increasing it.’ I don’t know what that magic moment is going to be.”

Overall, though, Schiff sees Yellen as “an even bigger money printer than Ben Bernanke, who was an even bigger money printer than Alan Greenspan.” The eventual result will be massive inflation. “This is what’s coming,” he predicted. “And when everybody figures it out, there’s only one place to hide — and that’s gold.”

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