Prices of precious metals and Treasurys were jolted higher
Friday after the U.S. government reported that the world's biggest
economy generated far fewer jobs in August than had been expected,
encouraging views that the Federal Reserve was likely to launch new
stimulus to keep the economy from slipping into recession.
The U.S. Labor Department said this morning that 96,000 new
nonfarm jobs were created in August-a sharp decline from July
numbers and a major upset for a market that had been looking for at
least 125,000 new job posts for the month.
The prospect of Fed action in the form of bond buying has helped
lift asset prices since the Fed enacted the first so-called
quantitative easing program in the depths of the market meltdown in
2008. QE3, so named because it would be the third such policy
action by the Fed, could come as early as next week.
Gold prices rose some 2 percent, while yields on benchmark
10-year Treasury notes fell to 1.59 percent before bouncing back a
bit as investors bid up bond prices.
Government debt prices get pushed up by QE because market
participants position themselves to take advantage of the Fed's
presence in the bond market. Precious metals also jump because QE
weakens the dollar. A weaker dollar means materials such as gold
that are priced in dollars automatically get more expensive.
Moreover, dollar weakening often leads investors to look for
enduring stores of value like gold.
The jobs report also contained a head-fake in the form of a drop
in the unemployment rate to 8.1 percent from 8.3 percent
previously. The decline reflects people dropping out of the
labor market rather than actually finding new jobs.
Precious metals prices quickly jumped on the improving prospects
Gold prices were up 2 percent at the close of U.S. stock markets
Friday at $1,738 an ounce, which buoyed gold ETFs such as the SPDR
Gold Shares (NYSEArca:GLD) and the iShares Gold Trust
(NYSEArca:IAU), both of which opened higher and continue to extend
gains throughout the session. Both funds close the trading session
each up around 2.1 percent.
Other markets such as silver and copper were also rallying
early, with copper prices hitting their highest mark since May.
Silver funds such as iShares Silver Trust (NYSEArca:SLV) and the
ETFS Physical Silver Shares (NYSEArca:SIVR) were tagging on gains
of some 3 percent while the iPath DJ-UBS Copper Total Return ETN
(NYSEArca:JJC) surged more than 4 percent.
On the bond front, yields on the 10-Year Treasury Note sank
nearly 5 percent to 1.59 percent in morning trade, and were
hovering around the 1.66 percent mark at the close as investors
rushed to own the bonds ahead of any Fed action. Bond yields move
inversely to prices.
The $4.6 billion iShares Barclays 7-10 Year Treasury Bond Fund
(NYSEArca:IEF) was up 0.16 percent by midday trading, trimming back
some of its earlier gains, while the longer-dated iShares Barclays
20+ Year Treasury Bond Fund (NYSEArca:TLT) turned lower after
rallying nearly 1 percent early on.
Permalink | 'copy; Copyright 2009 IndexUniverse LLC. All rights
Don't forget to check IndexUniverse.com's ETF Data
2012 IndexUniverse LLC
. All Rights Reserved.