Gold prices are trading moderately lower this morning following the release of the non-farm payrolls data for May. The highly anticipated jobs data for the month of May showed slight improvement once again. The U.S. created 217,000 jobs while the unemployment rate dropped to 6.3 percent. Consensus estimates were looking for 213,000 jobs created with the unemployment rate at 6.4 percent. The stock market is clearly pleased with what it sees, and is once again moving higher here today into new all time highs. Of note, however, is the fact that bond and note prices are rising while rates are falling today. This would seem to indicate some mixed feelings over the jobs report.
The dollar and the Euro have been at the center of investor’s attention this week. The currencies, however, are not moving in any significant manner following the jobs data. The Euro is down about 21 ticks while the dollar index is moving slightly higher. The ECB yesterday elected to take action in order to try and combat a slowing economy and to try and fight deflationary pressures. Among other things, the central bank elected to take the reserve rate down to -.10% in order to try and encourage banks to lend money rather than hoard it. While this weakened the Euro initially, it later reversed course and headed higher on the day. Time will tell, but it is quite possible the Euro does weaken further which could strengthen the dollar and potentially pressure gold prices. The dollar index is flirting with its April highs, and a breach above could potentially send the greenback much higher and possibly drive precious metals lower.
The crude oil market is maintaining trade above the $100 mark which could potentially help support precious metals. Should oil prices start to slide, however, the added pressure on gold and silver could potentially drive the markets on another extended leg lower. We’ve said it before and we’ll say it again. The stock strength is likely to continue to keep the pressure on gold and silver for the time being. The rally in stocks seems to be on autopilot at this point, and there is no telling when it may conclude. Investors are likely to continue to chase returns until the music stops. In the meantime, barring any new bullish catalyst, we could potentially see gold prices continue lower for a test of the $1200 level. Should this level not hold the gold bears, the notion of sub $1000 gold in the coming months is certainly a possibility.
