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U.S. Jobs Data Beats Expectations

Release Date: 
Saturday, December 8, 2012

American Advisor host Joe Battaglia provides a wrap-up of the week's precious metals news along with important commentary every week on the American Advisor Week in Review audio program. Click here to listen.

The gold price moved lower this week, with buyers stepping in at more attractive prices. Gold was $24.50 lower for the week, settling at $1701.50 per ounce at 2:15 PM Pacific Time at the New York Spot Market close, while silver was $1.43 lower, closing at $32.85 per ounce.

The U.S. added 146,000 jobs last month, the Labor Department reported Friday, beating analyst expectations of 80,000 new jobs. The unemployment rate fell to 7.7%, the lowest level since December 2008. This reduction, however, was, largely from people leaving the work force.

“There is speculation that the U.S. November unemployment rate fell to 7.7% due to certain cyclical factors which may not be there in December,” said Chintan Karnani, chief analyst at Insignia Consultants in New Delhi. “Unless gold gives a negative quarterly return for two successive quarters in 2013, investors will flock to invest in gold.”

Discussion of further fiscal stimulus may help to support the gold price, with the Fed’s next meeting scheduled for December 11. “I will be assessing the employment and inflation outlook in order to determine whether we should continue Treasury purchases into 2013,” Federal Reserve Bank of New York President William C. Dudley said in a speech late last week. “Talks about more stimulus measures being introduced are bullish for gold,” said Bart Melek, head of commodity strategy at TD Securities.

UBS AG analyst Edel Tully commented on the upcoming Federal Reserve meeting and possible further quantitate easing. “[A]ny aggressive move by the Fed would prompt a sizeable response.” Index rebalancing will also cause gold to be bought, UBS said in a precious metals report Friday.

Deutsche Bank commodity strategists noted potential strength in gold ahead. Metals research head Daniel Brebner said, "further central bank balance sheet expansion" likely next year may push gold toward $2,000 per ounce. “We would view the combination of a debt downgrade and the U.S. avoiding the fiscal cliff as gold price bullish,” Deutsche Bank commented in a note. “Indeed, events during August 2011, when U.S. Treasury debt was downgraded, proved to be unambiguously bullish for gold prices.”

Some economists expect the Fed to announce monthly bond purchases of $45 billion after its policy meeting. "(Friday’s jobs data) doesn't remove the need for stimulus but might convince the Fed to opt for a smaller program," BK Asset Management managing director Kathy Lien said.

Hedge funds, money managers and large investors raised bets on a gold rally by 13 percent to the highest level since Oct. 16, Commodity Futures Trading Commission data showed.

South Korea's central bank purchased 14 tons of gold in November, its fourth purchase in the last year and one-half. "Gold is a physical, safe asset and allows (the country) to deal with changes in the international financial environment more effectively," South Korea’s central bank said in a statement. The Bank of Korea now holds 84.4 tons of gold, up nearly six-fold from June, 2011.

South Korea’s purchase “points to stronger support for gold prices from central banks," said Philip Klapwijk, global head of metals analytics at Thomson Reuters GFMS, the precious metals consultancy. "If private sector investment falters and prices dip, central banks' buying supports prices at higher levels than if this demand were not present. It is a substantial additional source of demand for gold bullion."

Central banks likely will be net buyers for the fourth straight year in 2013, Commerzbank said. "By its own account, the Korean central bank regards gold as a safe asset and as a means of diversification in a bid to reduce the risks of foreign-exchange reserves management," Commerzbank said. "Since gold accounts for just 1.2 percent of its currency reserves, the Bank of Korea can also be expected to buy more gold in future."

Juerg Kiener, Managing Director and Chief Investment Officer of Swiss Asia Capital, said that we have been seeing massive buying of gold by central banks including those of China and Russia.
Central banks around the world bought a total of 351.8 tons of gold in the first nine months of 2013, up 2 percent from a year earlier, data from the World Gold Council showed.

The fiscal cliff remained in focus for analysts and markets. "If the U.S. really falls off the 'fiscal cliff', we are likely to see some buying of gold for store of value and also on the outlook that the U.S. dollar may depreciate further," said Lynette Tan, senior investment analyst at Phillip Futures in Singapore. "This is likely to give some support to gold."

Morgan Stanley reiterated its call for gold to be the top commodity for 2013 on investor demand and central bank buying, with a weaker dollar supporting the precious metal. Gold may average $1,853 per ounce in 2013, while silver may average $35 per ounce, Morgan Stanley said. Silver should trade higher, helped by low real interest rates, official sector buying and geopolitical uncertainty.

David Joy, chief market strategist at Ameriprise Financial, said gold may move higher in 2013 on the Fed expanding its balance sheet, further devaluing the dollar. Ameriprise places gold among its winning asset class picks for 2013.

Physical demand for gold has improved at the current price level. "Improving physical demand means that we are probably getting closer to the bottom of gold prices for now," said Yuichi Ikemizu, branch manager for Standard Bank in Tokyo, adding that $1,670 would be a near-term support level.

Demand in India was strong as prices fell to their lowest in a month. "Buying is on, as people feel prices are good," said Haresh Acharya, head of the bullion desk at Gujarat-based Parker Bullion. "Wedding demand is expected to continue for another couple of months."

“Gold investment demand is preventing gold prices from a fall,” said Chintan Karnani of Insignia Consultants. “Globally…despite bearish calls in gold by some of the hedge funds, investors have largely ignored such bearish calls and continue to invest in gold.”

“Asian gold investment sentiment is very bullish for next year,” Mr. Karnani noted. “Asians are investing in gold in a huge way. Indian gold prices have fallen nearly 4% from the all-time high in November, which has resulted more gold investment demand in India.”

Global gold demand in 2013 should be led by strong Chinese demand and a recovery in India, the World Gold Council said. This may help the precious metal continue its bull run into its 13th year, according to the Council.

Gold, silver, platinum and palladium prices could all rise sharply next year, with gold expected to top $2,000 per ounce and silver potentially hitting $40 per ounce, Commerzbank said in a research note.

“The year 2013 is likely to see precious metal prices climbing further or indeed resuming their upswing. The ultra-loose monetary policy pursued by the central banks coupled with geopolitical risks should ensure that gold remains in demand as a store of value and safe haven,” Commerzbank noted.

Gold may average $1,853 per ounce in 2013, while silver may average $35 per ounce, Morgan Stanley said. That compares with gold’s average of $1,668 so far this year and $31.15 for silver. BNP said its 2013 average gold price forecast is $1,865 per ounce.

Li Ning, an analyst at Shanghai CIFCO Futures, expects gold may revisit the $1,800 per ounce in the first half of 2013. Phil Streible, senior commodities broker at RJO Futures, said gold prices will rally into the end and through the first two weeks of January after last week's tax selling. He noted resistance near $1,750 to 1,755 per ounce, but said, “if we can break though there, I think in the first week of January we can be north of $1,800.”

ANZ bank also noted that a shift to the upside in gold could test $1,800 per ounce.

(Sources: “UBS Says a Fed QE Move Next Week ‘Not Priced In’ for Gold,” Bloomberg, December 7, 2012; “PRECIOUS METALS: Gold Bounces From One-Month Low,” Wall Street Journal, December 7, 2012; “Gold futures inch up, hold ground above $1,700,” Marketwatch, December 7, 2012; “PRECIOUS-Gold rebounds after hitting 1-month low on US jobs data,” December 7, 2012; “Morgan Stanley Backs Gold, Corn, Beans as Best Picks in 2013,” Bloomberg, December 6, 2012; “Gold Declines for Third Day Toward One-Month Low as Dollar Gains,” Bloomberg, December 6, 2012; “PRECIOUS-Gold inches down; physical buyers pick bargains,” Reuters, December 6, 2012; “PRECIOUS-Gold steadies near one-month low after ECB decision,” Reuters, December 6, 2012; “PRECIOUS METALS: Comex Gold Slips Again, Holds Below $1,700,” Wall Street Journal, December 6, 2012; “Gold prices to be range-bound in '12-'13: Deutsche,” Marketwatch, December 6, 2012; “Ameriprise: Big-Caps, GrowthandGold Will Win in 2013,” The Street, December 5, 2012; “UPDATE 1-South Korea central bank bought 14 tonnes of gold in Nov,” Reuters, December 5, 2012; “PRECIOUS-Gold bounces from 1-month low, US budget talks drag,” Reuters, December 5, 2012; “PRECIOUS-Gold climbs above $1,700/oz as stocks rise,” Reuters, December 5, 2012; “PRECIOUS-Gold dips 1 pct on stop-loss sales; may flush out buying,” Reuters, December 4, 2012; “PRECIOUS-Gold drops to one-month low below $1,700/oz,” Reuters, December 4, 2012; “PRECIOUS METALS: Gold Slips in Asia; Near-Term Outlook Unclear,” Wall Street Journal, December 3, 2012; “Tax Selling Done, Gold Set for Stretch Run,” The Street, December 3, 2012; “Hedge Funds Increase Bullish Bets Most Since August: Commodities,” Bloomberg, December 3, 2012; “PRECIOUS-Gold firms as Chinese data lifts stocks, euro,” Reuters, December 3, 2012; “Gold, Silver, Platinum, Palladium prices to rise sharply in 2013: Commerzbank,” Commodity Online, November 30, 2012; “Gold Will Soon Break to the Upside: Pro,” CNBC, November 27, 2012; “Korea Raises Gold Reserves Third Time Since June Last Year,” Bloomberg, August 2, 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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