Gold prices are under pressure this morning as a blockbuster U.S. non-farm payrolls report has reignited talk of the Fed tapering its bond purchases next month. Non-farm payrolls added 204,000 jobs which was well above consensus estimates of 120,000. In addition, the data from August and September was revised higher and thus the economy added an additional 60,000 over that period. The unemployment rate did tick up slightly however, from 7.2% to 7.3%.
This data is certainly a stunner especially given the ramifications of the partial government shutdown last month. Any way you slice it, it appears that this report has bolstered the case for a December taper by the Fed and if not possibly January. March seems to be off the table at this point.The dollar index cheered on the report and is currently trading higher again and back above the 81 level. Stocks are set to open the day session around the flat line but obviously there is a lot of day to go.
The gold market did not take the news well. Gold prices plummeted immediately from the $1309 area to the $1290 area and as of this post are continuing to grind their way lower. In the process, the gold market has taken out yesterday’s lows and the stage is now set for further downside. The $1275 area would appear to be the next stop.
With the Fed tapering upon us, the question now becomes what can possibly turn gold and precious metals around? One possibility that will be closely watched here in the near term is whether or not physical gold buyers step up to the plate to buy more gold. Buyers from India, China and other Asian countries may use the latest dip in gold prices to add to physical holdings. The physical market will be watched very closely as it will likely give clues as to whether or not gold continues lower or once again stabilizes in current areas.
Should there be a lack of interest by physical buyers here, we could very well see gold head back at $1250 and possibly even the June lows around $1182. In addition to physical gold buying activity, the dollar index may provide clues as well. If the greenback is able to stay strong and above the 80.50 level it will likely keep metals under pressure. As of this post, the dollar is testing its 200 day EMA at the 81.50 area. Should the dollar not be able to maintain recent gains however, or if some of the data set for release next week is on the soft side, investors may decide to rethink some of today’s exuberance.