Gold quiet ahead of US non-farm payrolls, disappointment could spark rally

Gold was effectively unchanged on Friday morning while market participants are firmly focused on the release of February’s US non-farm payroll numbers this afternoon.

“Given the acute focus on the US, many participants have likely resorted to playing the range this week with little interest to take on large positions ahead of today’s payrolls,” UBS analyst Joni Teves said.

Spot gold was last at $1,578.80/1,579.60 per ounce, down a fractional 65 cents. It has been trading in a range of just $6 today and just $20 this week.

UBS sees the headline non-farm payroll number at 190,000, higher than the general forecast at 165,000, Teves said.

US unemployment figures are particularly important for gold – the Federal Reserve has tied the longevity of monetary stimulus, which has inflationary implications and is therefore positive for gold, to the recovery of the jobs market.

Senior Fed members have recently said that bond-buying will continue until unemployment drops to 6.5 percent – both chairman Ben Bernanke and vice chairwoman Janet Yellen have stressed in recent weeks the effectiveness of unconventional monetary policy.

The unemployment rate is expected to remain unchanged at 7.9 percent.

If the jobs data misses forecasts, this could encourage gold to make another attempt at $1,60, Teves said, but it would first have to overcome technical resistance at $1,593.

In a precursor to the main event, payroll firm ADP delivered a positive surprise on Wednesday, with its books adding 198,000 new jobs in February, which was much better than the forecast number of 172,000.

“Our economists warn of the fact that the new ADP methodology is so far unproven, so its ability to predict the NFP data is still questionable,” Teves said.

In data released so far, the Chinese trade balance for February beat expectations, registering a surplus of $15.2 billion. In the UK, consumer inflation expectations rose to 3.6 percent from 3.5 percent.

Strength in equities linger, with the major Asian indices adding more than one percent each, while In Europe the FTSE 100 added 0.3 percent and the DAX was up more than 0.5 percent.

On currency markets, the euro gave back some of the gains made yesterday on comments from European Central Bank president Mario Draghi. It was last down 0.1 cents against the dollar just below 1.31.

The rest of the precious metals complex, with the exclusion of palladium, followed gold lower. Silver gave back 12 cents to $28.77/28.82 per ounce and platinum was $6 lower at $1,595/1,605.

But palladium, which has rallied on hopes of a recovering petrol-driven motor industry and more stringent pollution controls globally, was up $3 at $759/764 per ounce.

“While platinum may be vulnerable in an environment where Euro area growth fails to materialise, we believe efforts to curb pollution in China will boost palladium demand over the medium term and sustain the bullish physical fundamentals in this market,” Deutsche Bank’s Michael Lewis said.

(Editing by Mark Shaw)

Tom Jennemann

About Tom Jennemann

om has been a professional journalist for the past 14 years. At FastMarkets he covers the North American exchanges and physical markets.