Precious Metals Crash After Strong US Jobs Data

Gold crashed on Friday and is expected to continue its decline throughout the trading day. Gold ended the week at 1088.00. Gold closed lower for its eighth consecutive day, with the yellow metal trading nearly 80 points from the levels seen just two weeks ago. The commodity has sliced through all of the possible near-term support levels along the way, including previous bullish trend line support and the key psychological level at 1100. Now, gold is within striking distance of its nearly six-year low around 1080, leaving traders wondering, “Will we ever see a bottom?”

Gold and platinum were the strongest of the four precious metals last week with just a couple of basis points separating the two in what was a tough market for the precious metals sector as a whole. The stronger-than-expected change in nonfarm payrolls released on Friday likely sets the Federal Reserve on a path to an interest rate hike in December, unless significant economic news turns the tables. Platinum closed the week at 942.35. In the Asian market on Monday, traders are buying up the cheap metals. Gold gained $4.90 to 1092.00 while platinum and palladium continued to drift down. Silver moved in reflection to gold. 

Friday’s employment report illustrates U.S. economic strength. The report was underpinned by a few important factors that include a pickup in wage growth, tightening labor slack and an acceleration in retail hiring ahead of the holiday shopping season. While the price of gold suffered from the increased odds of a December rate hike, longer term it could benefit as sustained economic strength should start to push inflation higher.

Gold prices continued to fall this week, erasing all of October’s gains, on the back of a stronger-than-expected jobs report that pushed up the odds of a December rate hike to over 70*. Palladium fell 8.36 percent last week, significantly more than the 4.95% that silver suffered.  Some commentators expressed concerns, that in the wake of the Volkswagen emissions scandal, automakers may look for ways to avoid reliance on palladium for cleaning the emissions of gasoline powered engines. Palladium is trading at 622.20 up almost $16 on Friday.

According to UBS, India’s plan to tap idle gold may exceed expectations. A survey run by UBS shows a “significantly large” proportion of respondents are likely, or highly likely, to participate in the government’s monetization plan and aren’t resistant to temple gold being deposited with banks. Appetite for gold in China, which accounts for one-fifth of global investment demand, could fall in the long term as the country moves to internationalize the yuan. This would enable savers to gain direct access to foreign stocks and bonds, placing them in direct competition against bullion. China likely added about 14 tons of gold to its reserves in October, according to Reuter’s calculations from central bank data on Saturday.

China is the world’s sixth largest official sector gold holder after the US, Germany, the IMF, Italy and France. Gold still makes up less than 2 percent of China’s total foreign exchange reserves, a factor the market believes will drive the PBC to continue buying the previous metal.

Nomura predicts gold may dip as the Federal Reserve hikes rates in March 2016, and then recovers by the second half of the year. The bank forecasts bullion at $1,150 per ounce in the fourth quarter, falling to $1,115 in the first half of 2016, and then rising to $1,235 in the second half.