Gold prices are trading around the unchanged mark as of this post following a rapid sell-off and then recovery following the better-than-expected non-farm payrolls data for November. The U.S. added 203,000 jobs while the unemployment rate ticked down to 7.0%. This was well above consensus estimates for 180,000 jobs added with an unemployment rate of 7.2%. The unemployment rate is now in fact at the lowest level since 2008.
Following the release of the data, gold prices immediately dipped to re-test Wednesday’s lows in the $1210 area. The market was met with buyers at this level however, and quickly recovered as longs entered the market and shorts scrambled to cover.
Today’s jobs data will without a doubt reignite strong debate over the Fed’s tapering plans. One cannot argue the fact that the economy has been showing signs of strength, and therefore the Fed may choose to act sooner rather than later. There will likely be talk of the Fed tapering this month given the recent string of better-than-expected data. How exactly markets will react to this remains to be seen. Stocks are rallying sharply today based on the jobs data however, once more tapering talk creeps into the market place things could turn for the worse in the equities markets. This could be the catalyst for a sustainable rally in gold and precious metals.
The U.S. Dollar index reacted positively to the jobs data, but has since come off. The greenback has been making lower highs in recent weeks, and appears to be wanting to re-test the 80 level. Should the dollar continue to slide, it could also help fuel a rally in precious metals that could potentially become quite powerful as shorts cover and physical buyers enter the market. In addition, crude oil prices have rebounded quite a bit in recent sessions, and stronger oil could also pour fuel on the fire.
Gold appears to be making a stand at current level however, the bears do remain in firm control of the market. As we have stated, a re-test of the June lows looks quite possible. Should this be the case, the question then becomes whether or not this level is defended by physical buyers. The bulls must take trade back above the $1250 level in order to force more short covering and reignite some fresh buying interest. The 20 day EMA also coincides with this level making it that much more important. Should the bulls be able to take this out, then the 50 day EMA at $1280 may be a likely near-term target.
