U.S. Nonfarm Payrolls to Impact Gold More Than Central Bank Announcements

Wednesday July 3, 2013 11:01 AM

(Kitco News) - Although both the Bank of England and the European Central Bank are meeting on Thursday, most traders will be focusing on Friday's nonfarm payrolls as U.S. monetary policy has dominated the global marketplace.

"Everything is about the U.S. dollar and the (Federal Reserve)," said George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures. "The stronger U.S. dollar is what is pulling gold down."

Howard Wen, analyst at HSBC Securities, agreed that gold prices will be driven by the U.S. dollar, despite having a strong correlation with the euro.

However, with the ECB and its president Mario Draghi expected to be dovish during a Thursday press conference - following the rate announcement - Wen said that there is the potential for the euro to lose ground against the U.S. dollar, which would also be negative for gold.

Wen added that the price movement will be muted as major North American markets will be closed during the press conference. U.S. markets will be closed on Thursday as the country celebrates Independence Day.

Not much focus is being placed on the Bank of England. Analysts are not expecting any major announcements as this will be the first meeting for the new governor, Mark Carney, the previous governor for the Bank of Canada.

Despite the U.S. being closed on Thursday, some traders and analysts will be paying close attention to what Draghi has to say and a weak euro could set the tone for Friday's trading ahead of the employment report.

Michael Sneyd, foreign exchange strategist at BNP Paribas, said that although it is a question of timing, the market is already expecting the Federal Reserve to cut back its monthly bond-purchasing program; however, there is still some uncertainty regarding what Draghi is expected to say during the press conference.

"I think the ECB is going to be dovish and I expect to hear commentary regarding the euro's price stability," he said. "In our opinion, we think right now the two best currencies to sell against are the euro and the pound."

Nonfarm Payrolls Will Be the Big Driver

Neil Mellor, currency strategist at the Bank of New York Mellon, said that he will be paying attention to the ECB; however, he admits that there are signs that the central bank is losing its influence in markets as employment throughout the eurozone remains high.

He added the euro will continue to be dominated by U.S. dollar moves, which will react to Friday's employment report.

"The ECB is a marginal player. All they are doing is tinkering and that is not enough; the eurozone needs a complete overhaul," he said. "Even if the ECB implements negative rates, all they are doing is pushing on a string."

Mellor said that a strong U.S. dollar and weak gold is a "no brainer" as long as U.S. economic data continues to show growth.

Bart Melek, head of commodities strategy at TD Securities, said with so much optimism in the marketplace, he thinks the nonfarm payrolls data doesn't have to be too far out of line to drive gold lower. He added a small miss might create a short-covering rally but it won't change the perception that the Federal Reserve will start to taper its quantitative easing measures.

He added investors might actually start to sell into strong rallies.

"You would need to see quite a bit of negative data before the market changes its focus," he said.

Melek added that he expects to see some price stability if Friday's jobs report is in line with expectations.

Consensus expectations are for June non-farm payrolls to rise by 155,000 to 166,000 after a 175,000 gain in May.

Edward Meir, commodities consultant with INTL FCStone, said that a reading in line with expectations or lower could help to support gold as it might reinforce expectations that that the Fed may not start tapering immediately. He said, "judging from some of the labor-related components we have been seeing over the past few weeks, the odds seem to favor a more muted employment report."

Read the latest news in gold and precious metals markets at Kitco News.

By Neils Christensen of Kitco News

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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