Gold futures plunge below the $1 300 mark as U.S. payrolls exceed expectations

Gold fell to the lowest in three weeks after the Department of Labor reported that U.S. employers added more jobs than expected in October, signaling the partial government shutdown had limited effect on the labor market and optimism remained at hand. The U.S. unemployment rate inched up to 7.3% but American households income rose more than previously projected. The upbeat payrolls added to recently arisen speculations the Federal reserve might decide to pare its monetary stimulus earlier than expected.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in December fell by 1.57% to $1 288.00 per troy ounce by 14:33 GMT. Prices fell to a session low of $1 287.90 an ounce, the weakest level since October 17, while days high stood at $1 313.30. The precious metal lost 0.6% on Thursday and extended its weekly decline to nearly 2.2% on Friday.

Gold plunged after the Labor Department reported U.S. job growth unexpectedly accelerated in October from a month earlier, signaling U.S. employers overall ignored the 16-day government shutdown in October and remained optimistic over the nations economic recovery. U.S. non-farm payrolls surged by 204 000 in October, exceeding the median estimate of 91 economists surveyed by Bloomberg for a 120 000 advance. The private sector accounted for all the jobs gain last month as government payrolls fell by 8 000. Septembers reading received an upward revision to 163 000 jobs opened, up from initially estimated at 148 000, while Augusts payrolls were revised up by 45 000, signaling the U.S. labor market had gained momentum prior to the fiscal deadlock.

The average gains of job rose above the average of 190 000 for the past twelve months. However, the U.S. unemployment rate, derived from a separate survey by the Department of Labor, inched up to 7.3% from the preceding months near five-year low of 7.2%, indicating more Americans dropped out from the labor force. The participation rate, which measures the number of working-age people in the labor force, dropped to 62.8%, the lowest since March 1978, signaling more Americans were discouraged to seek employment. The government agency said the drop in the participation rate was not related to the government shutdown as furloughed workers remained in the labor force.

Brian Jones, senior U.S. economist at Societe Generale in New York, commented for Bloomberg: “The government shutdown really didn’t have a material impact on employment. The labor market is actually quite healthy, regardless of what people may think. The economy is doing better.”

The report showed that factories opened 19 000 jobs in October, partially reflecting the robust automobile demand. Retailers hired 44 000 workers, while the leisure industry created 53 000.

Meanwhile, American households income rose more than expected in September, according to data by the Commerce Department. Personal income jumped by 0.5%, beating forecasts for a 0.3% advance. The preceding months reading was revised up to 0.5% from initially estimated at 0.4%. Personal spending however grew at 0.2%, below Augusts 0.3% advance.

Data also showed that Core Personal Consumption Expenditures barely rose in September, matching estimates for a 0.1% advance. Year-on-year, core consumer spending advanced by 1.2%, trailing expectations for a 1.3% gain but matching the preceding periods increase.

The U.S. dollar index, which measures the greenbacks performance against a basket of six major counterparts, traded at 81.29 at 14:33 GMT, up 0.47% on the day. The December contract surged to a session high of 81.35, near yesterdays 1-1/2-month high of 81.55, and extended its weekly advance to 0.6%. Strengthening of the greenback makes dollar-denominated commodities more expensive for foreign currency holders and limits their appeal as an alternative investment.

Todays data added to a recent string of upbeat numbers which fueled speculations the Federal Reserve might begin trimming its monthly bond purchases earlier than expected as the U.S. economic recovery seemed sustainable. Data by the Commerce Department showed yesterday U.S. GDP (Gross Domestic Product) growth surged 2.8% in the three months trough September, the most in a year, defying analysts’ projections for a drop to 2% from the preceding quarter’s 2.5% expansion.

However, a smaller-than-projected expansion in U.S. consumer spending, which was confirmed by todays numbers, suggested an underlying loss of momentum, which partially offset the upbeat GDP and employment data. Personal Consumption Expenditures grew by 1.5% in the third quarter, underperforming expectations for a decrease to 1.6% from the preceding period’s 1.8%. Meanwhile, at 1.4%, core consumer spending advanced at a faster pace than the second quarter’s 0.6% but trailed expectations for a surge by 1.5%.