Gold weekly recap, November 4 – November 8

Gold fell by the most in more than a month on Friday and settled the week at three-week low levels after a string of surprisingly upbeat U.S. data lifted the dollar to the highest since September. Larger than projected third quarter economic growth and a rebound in the creation of jobs by the private sector fueled speculations the Federal Reserve might pare its monthly bond purchases earlier than expected as the U.S. economic recovery seemed sustainable and little affected by Octobers fiscal impasse. Silver and platinum marked a weekly decline, while palladium advanced.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in December fell by 1.57% on Friday to $1 288.00 per troy ounce. Prices plunged to a days low of $1 280.70 an ounce, the weakest level since October 17, and settled the week 2.1% lower following a 2.6% drop in the preceding five-day period.

The precious metal fell for a second week after unexpectedly upbeat economic data from the U.S. put an earlier-than-projected tapering of Feds stimulus back on the table and sent the U.S. dollar soaring to a 1-1/2-month high. The Labor Department reported on Friday 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 nation’s 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 of the jobs gain last month as government payrolls fell by 8 000. September’s reading received an upward revision to 163 000 jobs opened, up from initially estimated at 148 000, while August’s payrolls were revised up by 45 000, signaling the U.S. labor market had gained momentum prior to the fiscal deadlock.

The average pace of job opening rose above 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 month’s 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 but the underlying strength was notable. 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.

The report also 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 jobs.

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 month’s reading was revised up to 0.5% from initially estimated at 0.4%. Personal spending however grew at 0.2%, below August’s 0.3% advance.

Bart Melek, the head of commodity strategy at TD Securities in Toronto, said for Bloomberg on Friday: “The strong numbers today increase the probability of tapering starting this year. “We are seeing a flight toward the dollar.”

The U.S. dollar index, which measures the greenbacks performance against a basket of six major counterparts, settled at 81.29 on Friday, up 0.48% on the day. The December contract surged to a days high of 81.57, the strongest level since September 17, and closed the week 0.6% higher after it added nearly 2% in the preceding five-day period. Strengthening of the greenback makes dollar-priced commodities more expensive for foreign currency holders and limits their appeal as an alternative investment.

Also supporting the case for Fed tapering, a preliminary reading showed the U.S. economy expanded at a much faster pace in the third quarter than previously expected and exceeded the previous three months’ growth. Data by the Commerce Department showed 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.

A report by the Institute for Supply Management also contributed to dollars surge. Data on Tuesday showed the U.S. service sector expanded for the 46th consecutive month in October, indicating the 16-day partial government shutdown had little effect on the private sector. The Institute for Supply Management said that its Non-Manufacturing PMI rose to 55.4 in October, confounding analysts’ projections for slowing to 54.0 from September’s reading of 54.4. Despite last month’s expansion being below August’s 2-1/2-year low, the upbeat reading fueled speculations that the U.S. economy is faring well despite the political wrangling in Washington we saw last month.

Michael Widmer, analyst at BofA Merrill Lynch, said for CNBC: “At the moment, the market is looking at underlying growth and can see how the U.S. is accelerating and that very simply leads to tapering one way or another, which is obviously not bullish for gold.”

The precious metal has been tracking shifting expectations throughout the year of when the Federal Reserve will commence scaling back its quantitative easing program. Gold has fallen 23% so far this year as investors lost their faith in the metal as a store of value and cut their holdings in ETFs. Assets in the SPDR Gold Trust, the biggest bullion-backed ETP, remained at 868.42 tons on Friday, near the lowest since the beginning of 2009.

Elsewhere on the precious metals market, silver futures for settlement in December settled at $21.493 on Friday, down 0.76% on the day. Prices plunged to a 3-week low of $21.263 following the release of the employment data and closed the week 1.8% lower after losing almost 3% in the preceding five-day period.

Platinum for delivery in January fell by 0.78% on Friday and settled the day at $1 445.40 per troy ounce. Prices bottomed at $1 438.65 an ounce, the lowest since October 23, and ended the week 0.7% lower. Palladium futures for December settlement were almost unchanged on Friday and settled at $759.00 per troy ounce. The metal held in range between days high and low of $764.30 and $753.60 an ounce and closed the week 2.5% higher.