INTERNATIONAL. U.S. DOLLAR gold prices rallied to US$1640 an ounce Friday, following the release of disappointing US nonfarm jobs data, though they remained more than 1% down on last Friday's close.
Silver prices also spiked higher, touching US$30.19 per ounce – still 3.4% down on the week – while European stocks were down on the day and government bond prices up by Friday lunchtime in London.
Friday's monthly nonfarm payrolls report shows that the US economy added 115,000 nonagricultural private sector jobs in April, while the unemployment rate fell to 8.1%, down from 8.2% a month earlier.
Consensus forecasts among analysts before the release was for the economy to have added around 170,000 jobs, while Federal Reserve chairman Ben Bernanke last week said the economy needs to create between 150,000 and 200,000 jobs each month to meet Fed projections.
"[A disappointing] outcome would probably be more positive for gold," said Anne-Laure Tremblay, analyst at BNP Paribas, speaking on Friday morning before the nonfarms release.
"It would raise the possibility of further monetary accommodation by the Fed before the end of the year."
"Currently [however] the US Taylor rule signals that the Fed funds rate might be too low," points out Marc Ground, commodities strategist at Standard Bank, referring to the idea that the fed funds rate should be determined by inflation and unemployment levels.
"Whether this is a bearish signal for precious metals in general, and gold specifically, depends on how the Fed reacts relative to what the Taylor Rule suggests."
Earlier in the day, gold prices dipped below US$1,630 per ounce – at that point 2% down on where they ended last week.
Sterling gold prices at one point fell as low as £1006 per ounce – their lowest level in 2012.
Silver prices meantime fell below US$30 an ounce for the first time since January today.
"Given our view on Chinese silver stockpiles and the impact on imports, we believe that silver upside remains capped," says Standard Bank's Ground, referring to the bank's house view that Chinese warehouses currently have enough silver bullion to meet domestic industrial demand for around 15 months.
"Should Chinese imports stay low for a few months and stock levels deplete, we believe that China will have to come back and restock. This, we believe, could provide enough support for the metal to push prices above US$35, towards US$40, in Q4:12 [the fourth quarter of 2012]."
Here in Europe, activity in the Eurozone services sector continued to contract in April, and at a faster rate, according to the latest purchasing managers' index .
Eurozone services PMI fell to 46.9 last month – down from 47.9 in March – according to survey data published Friday.
"The survey suggests that the [Eurozone] economy was contracting at a quarterly rate of around 0.5% in April, extending the downturn into a third successive quarter," says Chris Williamson, chief economist at Markit, which produced the PMI.
"Remaining tensions in some Euro area sovereign debt markets and...the process of balance sheet adjustment in the financial and non-financial sectors and high unemployment, are expected to continue to dampen the underlying growth momentum," said European Central Bank president Mario Draghi yesterday.
Draghi was speaking at a press conference in Barcelona, following the ECB's decision to leave its main policy interest rate on hold at 1%.
"There are significant downside risks to the ECB's growth outlook," says Joerg Kraemer, Frankfurt-based chief economist at Commerzbank.
"Draghi indirectly hinted at next month's ECB meeting when the bank will publish its new projections. Since the ECB may lower its growth forecasts, the rate-cut discussion will stay with us."
"ECB hopes that the economy is recovering have turned to dust," adds Standard Bank currency strategist Steve Barrow.
"We expect the ECB to react with a 25 basis point [0.25 percentage point] rate cut as early as June's meeting."
Over in China – the world's second-biggest source of gold bullion demand last year – HSBC's purchasing managers index shows services sector growth accelerated last month, with the HSBC PMI rising to 54.1, up from 53.3 for March.
In world number one gold market India meantime, record high Rupee gold prices are weighing on demand, according to Indian jewelry dealers.
"We have to see physical buying coming back before gold can stabilize," says Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.
"Otherwise, we can test US$1,625 again. We don't know when the Indians will come back."
Note: Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.
For more information, please visit BullionVault.
(c) BullionVault 2012
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