Gold falls to session lows on U.S. jobless claims

Gold extended its retreat on Thursday and fell to a new five-week high as the U.S. Department of Labor reported a major drop in the number of people who filed for initial unemployment payments last week. Despite the fact that a big part of the fall was based on computer system upgrades in two states, which left some of the filed claims unprocessed, the data was overall positive and added to broad speculations that the Federal Reserve will begin scaling back its monetary easing program this month.

On the Comex division of the New York Mercantile Exchange, gold futures for December delivery plunged by 2.46% to $1 330.20 per ounce at 13:27 GMT. Prices fell to a new five-week low at $1 326.10 an ounce, while days high remained at $1 366.60. The precious metal fell for a fourth consecutive day and extended its weekly decline to 4.5% following Thursdays steep fall.

Gold declined further as upbeat initial jobless claims reinforced expectations for QE tapering to be announced at FOMCs meeting next week, which allowed the greenback to extend positions. According to the U.S. Department of Labor, the number of Americans who filed for initial unemployment payments fell by 31 000 to 292 000 in the week ended September 7. This was the lowest reading since 2006 and confounded analysts expectations for an increase of 7 000 claims. An agency spokesman however said that the large drop was based on the inability of two states to process all the filed claims due to an upgrade of their computer systems. One of the states was large and the other small, the spokesman said.

The four-week moving average, which smooths out weekly volatility, fell to 321 250 last week from 328 750, the lowest since October 2007. Even with the unprocessed claims left aside, the preceding weeks four-week moving average was already the lowest since 2007, indicating that the labor market conditions are steadily improving.

Meanwhile, the number of people who continued to receive jobless benefits fell by 73 000 to 2.87 million in the week ended August 31. People who used up their traditional payments and are now receiving emergency and extended benefits dropped by 40 000 to 1.45 million in the week ended August 24.

Annalisa Piazza, analyst at Newedge Strategy, said in a note: “The decline might be partially determined by one-off factors. That said, todays data certainly confirm that the U.S. labor market seems to be on a slow healing process.”

Gold extended losses as the majority of market players expected policy makers to announce a long-awaited reduction of Fed’s monetary easing program at the upcoming FOMC meeting on September 17-18. According to a Bloomberg survey conducted last Friday, the central bank will trim its monetary stimulus by $10 billion after the meeting.

Goldman Sachs predicted that gold will extend its 2013′s first annual drop in 13 years into 2014 as the Federal Reserve is expected to bring the Quantitative Easing program to an end by the middle of the year. The group’s analysts also expect that policy makers will announce the begin of QE tapering at the upcoming FOMC meeting on September 17-18, based on the consistent improvement of the economy.

The dollar index, which tracks the greenbacks performance against a basket of six major counterparts, traded at 81.82 at 13:24 GMT, up 0.15% on the day. The contract surged to a session high of 81.92 minutes after the release of the report, while days low remained at 81.59. The U.S. currency gauge fell by 0.39% on Wednesday and trimmed its weekly decline to 0.4% following Thursdays advance.

A separate report by the Labor Department showed that import prices remained flat in August, confounding expectations for a 0.5% increase. Julys reading received a 0.1% downward revision after initially showing a 0.2% gain. Import prices have trended lower over the last year, mainly driven down by the non-oil component. In August, fuel inbound shipments rose by 0.5%, while non-petroleum prices fell 0.2%, a seventh consecutive monthly decline. This has helped keep inflation below the Federal Reserves 2% target.

Meanwhile, export prices were reported to have fallen by 0.5% in August. The decline was mainly based on a drop in prices from the farm sector, despite recent signs for expanding economic activity in the Euro zone. Non-agricultural exports however also declined, marking a sixth fall in a row.