By: Ben Myers
The better-than-expected job news released in the US on Friday caught many investors on the hop, and whilst the 243,000 increase in non-farm payrolls strengthened the USD, Gold retreated from an 11 week high and decreased for the first time in 4 trading sessions. Despite the drop, gold prices remained virtually unchanged from the week before with January posting an advance of 11% for the month, the largest in a month since August 2010.
The improvement in US economic data should see a subsidence of calls for quantitative easing from the Fed. The 243,000 increase was far better than the estimates of around 150,000 and unemployment fell from 8.5% to 8.3%. Also on Friday, the ISM non-manufacturing composite recorded its highest level (56.8) since February 2011 and exceeded the estimated 53.2. Fed Chairman Bernanke’s vow last week to keep interest rates at their record low until the end of 2014 sparked a move into gold, being the traditional hedge against inflation, and gold prices surged 5.5% in the 8 trading sessions since the announcement. However, now with calls for easing dissipating, we could see gold suffering a large decline. The historical data shows that 2 of the 3 past monthly increases have been followed by a noticeable decline of around 7%.
Gold experienced resistance at 1763 – December’s high, before retreating and interim support is now at the 61.8% Fibonacci extension extracted from the Sep 26th and Dec 29th troughs at 1690 with resulting floors at the 50% extension at 1658 and 1640.
A look at the week ahead and we have some interest rate decisions across the globe, but investors should be closely monitoring Bernanke testifying before the Senate Banking Committee and justifying the 2014 interest rate decision in the light of the positive US economic data. If the Fed Chairman were to soften his forecast, gold could come under pressure. Expect gold to ease in the week ahead as the USD looks to strengthen and talks still ongoing in debt restructuring of Greece. Forecasts are still that Gold will top 2000 for 2012 but a look at the stats and the stronger greenback point towards a decline in the value of Gold this week.