Turmoil in Ukraine Helps Underpin Gold

Turmoil in Ukraine and concern that global growth is slowing helped drive investors into U.S. government securities, driving down Treasury yields. This helped diminish demand for the U.S. Dollar.

Also out of the U.S., private jobs data from ADP Research Institute showed the U.S. economy added 213,000 new jobs. This was above the 205,000 job estimate. On Friday, the U.S. is scheduled to release the September U.S. Non-Farm Payrolls Report. This report is expected to show a 218,000 job increase versus a 142,000 gain in August.

Another report showed U.S. manufacturing softened a little in September. The Institute for Supply Management’s Index dropped to 56.6 from 59 in August. Traders had priced in a figure of 58.6. PMI data for German and the U.K. showed a steeper-than-expected decline in manufacturing in both countries in September, with German joining France in contraction. The U.K. posted a reading of 51.6, below economist estimates of 52.7. Finally, U.S. Construction Spending posted a 0.8% decline versus pre-report guesses of a gain of 0.5%.

The reports didn’t have the expected effect on the currencies and commodity markets. GBP/USD, EUR/USD and gold traders produced a two-sided trade as they continued to pare positions ahead of Friday’s U.S. Non-Farm Payrolls reports.

Today’s reports were bearish for the U.K. and the Euro Zone, but this data seems to have been baked into the market based on today’s reaction. Technically oversold conditions also helped trigger counter-trend moves. Despite today’s rebound rallies in the British Pound and Euro, expectations are for these markets to continue lower if the U.S. reports better-than-expected jobs data on Friday.

December Comex Gold is also likely to fall on bullish jobs news if it triggers a rally in the dollar. However, geopolitical events in Ukraine and the Middle East could underpin the market. The lack of follow-through to the downside recently in gold could be a sign that counter-trend investors are coming in to defend the psychological $1200.00 level.

If these buyers force the hedge and commodity funds to cover aggressively, technical factors indicate gold has the potential to spike higher by at least $50.00 over the near-term.

November Crude Oil futures rallied on Wednesday after a government report showed oil stocks unexpectedly fell last week. According to the U.S. Energy Information Administration, crude inventories fell by 1.4 million barrels in the week-ended September 26.

Continue to look for light profit-taking and position squaring in the British Pound, Euro and Gold ahead of Friday’s U.S. Non-Farm Payrolls report, but be prepared for volatility due to geopolitical developments in Ukraine.