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Gold Surges As Weak Jobs Data Fuels Expectations For More Quantitative Easing

(Kitco News) - Gold futures rocketed higher Friday as a weaker-than-forecast U.S. employment report added fuel to ideas that the Federal Reserve will undertake some kind of further monetary stimulus. Analysts say this comes against a backdrop in which the metal also has some other factors in its favor, such as the European debt crisis and seasonal influences. "We still have concerns about the U.S economy, the European economy, debt problems, political uncertainty and currency volatility," said Frank Lesh, broker and futures analyst with FuturePath Trading. "All of those things support the gold market. It is indeed a safe haven at the moment from many different factors." As of 11:16 a.m. EDT, gold for December delivery was $48.70, or 2.7%, higher at $1,877.80 an ounce on the Comex division of the New York Mercantile Exchange. Decembr silver followed, gaining $1.483, or 3.6%, to $43.015. December gold peaked at $1,884.60 and silver at $43.24, their most muscular levels since Aug. 23. Prices rose sharply overnight, and global equities had a softer tone, in anticipation of a weak U.S. jobs report. With some economists downwardly revising their forecasts, the consensus expectation was for a roughly 50,000 gain in non-farm payrolls. The actual result was even worse, as the Labor Department reported no payroll gains at all for the weakest monthly result since September 2010, when employment fell. The unemployment rate last month held at 9.1%. "In a nutshell, you can already hear the band queuing up QE3," said Jim Comiskey, senior market strategist with MF Global. QE3 refers to a potential third round of quantitative easing in which the Federal Reserve purchases U.S. Treasury securities in a bid to push down long-term yields, which move inversely to the price. The second round concluded at the end of June. If QE3 does come about, "you're to see more dollar weakness," Comiskey said. "And, you're going to see a continuation of commodity price spikes, most notably felt in the metals sector." If not QE3, some other type of action to further loosen monetary policy is increasingly expected from the Federal Reserve, said Sterling Smith, commodity trading adviser and market analyst with Country Hedging. "We were $30 better (in gold) when we came in," he said. "Throw in the jobs number, and presto, we're about $50 better." Lesh pointed out that at the Federal Reserve's recent annual conference in Jackson Hole, Wyo., officials announced that policy-makers' meeting later this month was being expanded to two days. "Any signs of economic weakness lead people to believe there is more Fed stimulus coming," Lesh said. Excluding a so-called "birth-death" adjustment, August payrolls actually would have fallen by around 87,000, Comiskey said. Further, previous payroll counts for June and July were revised lower by a combined 58,000. Comiskey said he looks for December gold to top the $1,917.90 peak from Aug. 23, the record for a most-active Comex contract. "My ultimate objective from here is $2,250," he said. Mike Daly, gold and silver specialist with PFGBEST, called the employment picture "the biggest bugaboo" facing the U.S. at the moment. Further, the situation is worse than the 9.1% unemployment rate implies, he said, since many Americans who do have jobs are "underemployed." This comes against a backdrop in which foreclosures remain high, he continued. Meanwhile, some traders view September as the start of a seasonally strong period for gold, with demand for physical metal historically picking up ahead of a number of gift-giving holidays around the world, including the autumn "wedding season" in India and leading into Christmas in Western nations. "On the dips last week, there was physical buying coming from India for jewelers to re-stock their shelves for the upcoming season," Daly said. "People were looking for a reason to get back into the market. And, it's almost a foregone conclusion that Europe is going to continue to struggle (with debt issues)." The spread between Greek/Italian bonds and German bonds is widening again, hinting at increasing investor uneasiness with the European debt picture, Smith said. Political developments are playing a role in this, such as hesitation on the part of Italian lawmakers to maintain austerity measures promised in exchange for bailout funds, Smith said. Further, the gold market drew some support when European Central Bank President Jean-Claude Trichet was quoted in the Italian newspaper "Il Sole 24 Ore" as saying he would not rule out a gold-backed euro bond as collateral for European bailouts, Comiskey said. If gold from nations such as Greece, Italy and Ireland were to be tied up backing the bonds, he said, this would remove the potential for official sales of this metal from these sources. By Allen Sykora of Kitco News; asykora@kitco.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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