Gold Makes Major Leap Forward Following Jobs Report
| by Michael Locklear
September 7, 2012 – US job growth in August was considerably less than expected. Non-farm job growth rose to only 96,000 far below projected forecasts of job growth around 125,000. The report released today showed in August decline of 0.2% employment numbers and prompted the gold bull’s to rally and pushed the spot price of gold $40 to the largest gain in six months of $1740.
The weak US labor report, caught investors by surprise since they anticipated much stronger numbers particularly after the ADP jobs information released yesterday. The weak report today only further fuels speculation, from market experts, that the September 12-13 meeting of the FOMC will lead to an announcement of a new round of monetary stimulus by the Federal Reserve.
Although European stock markets are stronger in response to the European Central Bank President Draghi’s announcement on Wednesday that he would initiate a new debt reduction program for Spain and Italy by further bond buying and that this new initiative would not contribute to further inflation and the assurance that the euro zone will remain intact. However most gold market investors doubt that this move will be effective and they still anticipate a rise in inflation despite the assurances of the European Central Bank’s president.
The weak jobs report also resulted in the US Dollar Index moving lower in trading today. This continues a six week long decline in the value of the dollar.
Another factor fueling the predictions of a new round of quantitative easing by the Fed is the fact that last month’s jobs report which initially posted a growth of 163,000 jobs was later revised to post only 141,000. This could mean that today’s job report could also be revised downward revealing even more grim state of job growth in the US.
All of this news has the gold bugs highly agitated. Their excitement in pushing the price of gold to its record levels today may very well be justified in view of remarks made by Federal Reserve Chairman Ben Bernanke at the Federal Reserve Symposium, in Jackson Hole Wyoming last month. Be part of his remarks that has everyone so excited was the following statement:
As we assess the benefits and costs of alternative policy approaches, though, we must not lose sight of the daunting economic challenges that confront our nation. The stagnation of the labor market in particular is a grave concern not only because of the enormous suffering and waste of human talents it entails, but also persistently high levels of unemployment will wreak structural damage on our economy that could last for many years.
In view of today’s job report and this statement made by the Fed chairman speculation that new monetary easing will happen is running rampant in the markets today. Goldman Sachs and virtually every top economist on Wall Street are predicting that the next Federal Reserve Federal Open Market Committee Meeting next week will produce an announcement of a new round of quantitative easing. Commonly known as QE3.
Gold exchange traded funds have reached new highs; holdings of 72.1 million ounces on Thursday. That is a gain of 38 tons over the last nine months of this year. August saw the largest increase in these holdings as monetary stimulus speculation reached its peak. In view of today’s actions by the gold market further growth of gold exchange traded funds can be expected. How high the gold price will go is on the mind of millions of investors today as they wait for the next round of Fed discussions.
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