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Gold Slips on Strong Labor Data

Simon Constable

Robust employment data and brighter-than-predicted trade figures boosted the dollar Friday, sending gold lower, eliminating the metal's early gains.

Contracts for April delivery of bullion were slipping $4.10 to $651.40 an ounce on the Comex division of the New York Mercantile Exchange. Earlier in the session prices lifted as high as $659.80 before reversing. The exchange-traded funds that hold stores of the metal, iShares Comex Gold Trust (IAU) and streetTracks Gold Shares(GLD), were up a slight 0.1% and 0.2%, respectively.

At 8.30 a.m. EST the Labor Department reported lower-than-expected unemployment figures and a higher-than-expected increase in hourly earnings for February. At the same time the Commerce Department published numbers showing a smaller-than-expected trade deficit in January.

"The headline [unemployment] number was dollar strong, because it came in stronger than expected and was resilient in the face of adverse weather in February," says Ellen Beeson Zentner, a macro economist at the Bank of Tokyo-Mitsubishi-UFJ in New York.

The healthy economic news will keep pressure on the Federal Reserve to keep a lid on inflation and leave interest rates higher for longer and so keep the dollar attractive relative to other currencies.

As if on cue, the greenback strengthened after the new economic data, and so hurt gold prices, which tend to move in the opposite direction to that of the U.S. currency. One dollar was recently buying 118.07 yen, up from 117.04 yen late Thursday. The euro was buying $1.3114, down from $1.3133 previously.

In the futures market, at least one observer noted the absence of investment buying in recent activity and pointed to daytrading activity as the major force for the session.

"The get-me-out-for-the-weekend crowd is dominant in the pit," says George Gero, vice president of futures sales at RBC Capital Markets in New York. Expect longer-term investment demand to kick in on major price dips, he adds.

Elsewhere in economics, the Manhattan-based Economic Cycle Research Institute reported declines in its future inflation gauge indices in February for the U.S., the eurozone and the U.K. The FIG measures a decline in factors that cause a rising price level. Bucking the trend were increases in the FIG's for Canada and Korea.

ECRI also reported a 3.2% rise in its weekly leading index, marking the 20th consecutive uptick in the indicator, which portends favorable business activity in the months to come.

The data will not please the gold bulls, as the price of the metal tends to benefit from an economic malaise rather than the prospect of a soundly expanding U.S. economy and generally lower inflation in the months to come.

Turning to the mining patch, shares of Newmont Mining(NEM) were slipping 0.6% while those of Gold Fields(GFI) were ahead by 0.4%.

As for base metals copper contracts were off 3 cents at $2.80 a pound on the Comex with rising inventories in Shanghai said to be the main catalyst for the dip.