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Gold Prices Jump 4% on Tepid Job Growth

Release Date: 
Friday, June 1, 2012

Gold prices saw their largest daily rise since August after Labor Department data showed the smallest monthly job gains in a year, along with the first increase in unemployment in a year. Gold was more than four percent higher, up $64.40, at 11:45 a.m. Pacific Time on the New York Spot Market, trading at $1,625.60 per ounce. Spot silver was $0.79 higher, trading at $28.60 per ounce. (Click here for the most current spot prices.)

"It is increasingly obvious that we are in the midst of a global economic slowdown. This puts the Fed firmly in play and they will likely feel compelled to respond," Tom Porcelli, chief U.S. economist at RBC Capital Markets, said. "The missing ingredient preventing the Fed from action had been the equity market, but now we are seeing it softening. Equities are falling and that was the last hurdle for Fed policy action because all the other criteria have been met."

The disappointing job figures were "just what gold wanted to hear," said Frank Lesh, broker and futures analyst with FuturePath Trading. "People feel that after this number, more money printing is coming," said Matt Zeman, head of trading at Kingsview Financial. "We're seeing gold trading once again as more of a safety instrument than anything else," Zeman added.

"Two months of disappointing jobs numbers implies a trend," said Brien Lundin, editor of Gold Newsletter. "Two months of numbers this horrendous screams that a significant downturn is underway, and puts the QE3 theme front and center." Lundin said that "the speculators are starting to salivate over the next round of quantitative easing that will be served up to the markets," noting that "gold has been the first to react to this prospect."

The next speech by a Fed governor is likely to include "some massaging of the message to recognize the ongoing weakness in employment and open the door to another round of money creation," Lundin said. Investors would then "seize upon this confirmation to move en masse into the QE trade, sending gold higher," he added.

"It's very likely that the economic data today and what's come out of Europe has convinced the market that there will be further government monetary stimulus," said Robert Lutts, chief investment officer of Cabot Money Management, which manages $500 million in client assets. "Larger institutions will commit money to gold in ways they never had before. We are talking about CALPERS, Yale and Harvard," Lutts said.

(Source: "Gold futures score biggest gain since August," MarketWatch, May 31, 2012; "RPT-PRECIOUS-Gold vaults 3 pct, above $1,600 on jobs, Fed talk," Reuters, June 1, 2012; "PRECIOUS-Gold leaps 1.5 pct after U.S. data misses forecasts," Reuters, June 1, 2012; "Job Growth Slows," Wall Street Journal, June 1, 2012; "Spending, Incomes Rise," Wall Street Journal, June 1, 2012; "Gold Settles at Three-Week High," Wall Street Journal, June 1, 2012)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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