Gold prices are moving sharply lower this morning following the release of the U.S. Department of Labor’s non-farm payrolls report for the month of February. According to the department, the U.S. added 295,000 jobs last month despite challenging weather conditions while the unemployment rate fell to a near seven year low of 5.5 percent. Consensus estimates were looking for an increase of 230,000 jobs with the unemployment rate at 5.6 percent.
This is the largest hiring spurt since the Clinton years, and reinforces the notion that the economy is continuing to improve. Of some ongoing concern, however, is the fact that wage growth continues to be sluggish. That being said, the economy has now added 200,000 or more jobs each month for twelve months, the longest such streak since the mid 90s.
The U.S. dollar index flew to the upside after the release, with the dollar reaching a fresh new high. The Euro currency tumbled, and is now sitting at its lowest level in 12 years. The Euro is showing no signs of slowing its descent either, and this could be a negative for gold and other precious metals.
Stocks are selling off on the news as investors appear to be now pricing in a June rate hike by the Federal Reserve. A stronger dollar and the notion of higher rates may continue to weigh on stocks, although gold may not see the inflows once thought if stocks really start to move lower.
Gold prices are trading lower by almost $20 per ounce as of this post, and today’s close may be an important one. Gold is currently below support in the $1180 area, and a decisive close below this level could ignite further selling next week as technical and momentum traders get on the lower gold bandwagon.
That being said, gold could potentially see significantly lower prices in the coming weeks and months if the $1180 and $1140 areas do not see buying interest. In fact, the possibility of gold reaching $1000 per ounce becomes more and more likely. Gold has a number of headwinds currently working against it, and without some type of bullish catalyst gold may continue to see significant selling pressure.
Such a potentially bullish catalyst could include significant stock weakness, an escalation of tensions with Russia or a Greek exit from the EU.
Unfortunately for the gold bulls, the euro appears to be headed for parity with the U.S. dollar and this dollar strength may keep a lid on any bullish sentiment in the precious metals space.
