Gold prices fell sharply today on the heels of this morning’s non-farm payrolls data for January. According to the U.S. Department of Labor, 257,000 jobs were added last month while the unemployment rate ticked slightly higher to 5.7 percent.
Stocks moved higher initially on the news, only to surrender their gains and end lower on the day. Crude oil prices closed higher today as the oil bulls attempt to hold the $50 per barrel level. The big story of the day was the U.S. dollar index, which soared today. The greenback closed near its recent highs, and the dollar looks poised for further upside.
Dollar strength today was likely a strong influence on the price of gold, and the yellow metal broke some key support levels on the downside. Gold prices have been trending lower the last couple weeks, and with today’s weak close appear to be headed even lower. A test of support in the $1220 area may be seen early next week.
Today’s jobs report had a dramatic effect on gold because it may pave the way for the Fed to go ahead and initiate the first rate hike in June. There has been debate over the last several weeks on whether or not the central bank would still hike rates given the lack of inflation and ongoing economic weakness in areas such as the Euro zone and Japan. Today’s better than expected jobs report, along with revisions higher on previous reports, may be the deciding factor for the Fed.
The gold bulls and the gold bears have been having a tug of war of sorts as dollar index strength has acted as resistance to higher gold prices while risk aversion has helped keep a bid in gold. Several current issues such as the unknowns surrounding Greece and the ongoing conflict in Ukraine may yet keep a floor under gold prices. On the other hand, the higher greenback along with the notion of higher rates may be more than the bulls can stand, and gold may see additional downside before finding any type of bottom.
The selling seen in gold today may simply run its course as investors begin to look outside of the U.S. Several other nations remain in accomodative positions with regards to monetary policy, and troubles in the EU and elsewhere do not appear to be going away anytime soon.
Next week could see additional selling in gold as the bears now have clear technical momentum. The market will take its cues from the dollar, any further clues from the Fed and general risk appetite or lack thereof.
