Price of Gold Fundamental Daily Forecast – Up on NFP Miss; Heightened Volatility Expected Amid Tapering Debate

Gold futures are trading higher on Friday, rebounding from an earlier loss, after job creation disappointed again in May, with Non-Farm Payrolls up a solid 559,000 but still short of lofty expectations, the Labor Department reported.

Payrolls were expected to increase by 671,000, according to economists surveyed by Dow Jones. The unemployment rate fell to 5.8% from 6.1%, which was better than the estimate of 5.9%.

At 12:39 GMT, August Comex gold is trading $1879.40, up $6.10 or +0.33%.

Labor Market Improving at Steady Pace

Let’s make one thing clear, the headline miss is not bearish for the economy and bullish for gold. It may just confirm what the Fed has been saying that the economic recovery is going to be an uneven and lengthy process. This is why Fed speakers have been reiterating that policy would remain unchanged for a prolonged period of time.

Today’s NFP report is just another piece in the long-term puzzle. The job market is moving in the right direction, which could put a lid on gold prices, but the news may not be strong enough to drive gold prices sharply lower over the near-term.

Short-Term Outlook

We expect to see heightened volatility over the short-run because the market doesn’t know what the Fed is going to do at its June 15 -16 monetary policy meeting.

The price action suggests that gold traders may believe that the measured job gains would keep the Federal Reserve from raising rates and tightening policy. I think it’s safe to say that both are still a long ways off. We’re getting close to the Fed’s mandates of 2% inflation and 5% unemployment so the Fed isn’t going to do anything drastic or surprising to alter policy. That’s supportive for gold.

But what about tapering? I don’t think that is going to happen over the short-run. So that’s another plus for gold.

But what about discussing tapering? That is an interesting question because the futures market tends to discount future events. Therefore, I think the Fed discussing tapering at its June meeting will be enough to put a lid on prices. This assessment will be supported by the continuation of strong economic data.

In summary, look for a choppy, two-sided trade until traders get more guidance from the Fed after the June 16 announcements. I suspect that the Fed discussing tapering at this meeting will be bearish for gold, while not discussing tapering will breathe a little more life into the precious metal but not enough to trigger a runaway rally.