Friday morning saw the gold price drop below $1700 an ounce again, while stock markets, commodities and the Euro all fell ahead of the final US nonfarm payrolls release of 2012.
According to several sources the consensus forecast among analysts ahead of the report was for 93,000 jobs added in November, with the official unemployment rate expected to hold steady at 7.9%.
“US payroll data will be the main number focus today but there’s probably two reasons why we might expect less reaction than normal,” says Standard Bank analyst Steve Barrow.
“The first is that the markets are clearly fixated by the fiscal cliff and it is doubtful that any data is going to have a significant impact until the cliff is sorted. Secondly, economic growth this quarter will be written off due to the impact of [Hurricane] Sandy.”
“If the unemployment rate should turn out to be higher than anticipated, the US Federal Reserve may decide at its meeting next week to top up [its latest asset purchase program] ‘QE3′,” says today’s commodities note from Commerzbank, though it too acknowledges that today’s employment numbers “will be distorted as a result of Hurricane Sandy.”
“A weaker-than-expected number could have a [gold positive] impact on the Fed meeting,” agrees Ole Hansen, head of commodity strategy at Saxo Bank.
“But it could also help force the hands of US politicians [negotiating over the so-called fiscal cliff], as they can see that the economy is hurting from the lack of knowledge about where it stands on January 1.”
Heading into the weekend, gold looked set for a 1.1% weekly loss by Friday lunchtime in London, the second successive weekly drop.
Bullishness among gold traders has fallen to its lowest level in seven weeks, according to a survey by news agency Bloomberg, which found 14 of 31 analysts expect the gold price to rise next week, the lowest proportion since October 19.
“We will get momentum again, but I don’t think it’s going to come until after the first of the year,” says Jeffrey Sica, president of SICA Wealth Management in New Jersey.
“Hedge funds that have underperformed and need to raise liquidity for redemptions are likely to sell their winners.”
Silver meantime fell to $32.82 an ounce this morning, 1.9% down from where it started the week.
The European Central Bank yesterday cut its economic growth forecasts for next year, while it also lowered its outlook for Eurozone inflation.
ECB president Mario Draghi told a press conference that 2013 projections for Eurozone growth made by central banks staff range from a 0.9% contraction to growth of 0.3%. This is down from the range of minus 0.4% to 1.4% 2013 growth projected back in September.
“Inflation rates are expected to decline further to below 2% next year,” added Draghi.
“Over the policy-relevant horizon, in an environment of weak economic activity in the euro area and well-anchored long-term inflation expectations, underlying price pressures should remain moderate.”
The Bundesbank meantime has cut its forecast for German economic growth to 0.4%, down from 1.6% predicted back in June.
“However, there’s reasonable hope that the phase of economic weakness won’t last too long and Germany will return to growth,” said a statement from Germany’s central bank.
The Euro extended Thursday’s losses against the Dollar this morning, ending Friday morning in London around 1.6% below Wednesday’s seven-week high.
Following yesterday’s drop for the single currency, gold in Euros has risen back above €42,000 per kilo, though it remains below where it started the week.
UK consumers expect an inflation rate of 3.5% over the coming year, up from 3.2% expected back in August, according to the Bank of England’s latest Inflation Attitudes Survey published Friday.
UK manufacturing output meantime fell 1.3% in October compared to a month earlier, and 2.1% year-on-year, while overall industrial production was down 0.8% over the month and 3.0% year-on-year, official figures published Friday show.
“Triple dip [recession] watch starts here,” says Scotiabank economist Alan Clarke.
Britain’s next government will likely have to raise taxes as a result of “inconceivable” spending cuts proposed in Wednesday’s Autumn Statement by UK chancellor George Osborne, according to report published yesterday by think tank the Institute for Fiscal Studies.
Hong Kong meantime exported just under 47.5 tonnes of gold bullion to China in October, a 32% drop from the previous month and a 10-month low, Hong Kong government data published Friday show. Hong Kong acts as a major conduit for Chinese gold imports from the rest of the world.
Over in India, traditionally the world’s biggest source of private gold demand, the Rupee failed to hold onto Thursday’s gains against the Dollar earlier today.
“Demand is not very high today as [gold] prices have increased,” says Mayank Khemka, managing director at Khemka Group, a wholesaler in Delhi, though he added that the festival season has seen “some revival in demand” during December.
“Structural policy measures are needed to reduce [India's] vulnerability emanating from high oil and gold imports,” Shri Deepak Mohanty, executive director at India’s central bank, said in speech Friday.
“Gold seems to have become a safe investment asset and a hedge against inflation as is observed in other advanced economies.”
Mohanty argued that the “dematerialization” of gold, meaning the encouragement of investment in gold-linked instruments rather than ownership of the metal itself, could be a way of reducing imports of physical bullion with a view to improving India’s balance of payments.
“Inflation indexed bonds could also be another option to offer investors the inflation linked returns and detract them from gold investments,” he added.
Ben Traynor | BullionVault