Daily Market Update

Gold Investments Market Update – US Jobs Report Less than Expected; Based on BLS Statistical Assumptions

Gold

Gold was down $12.90 to $931.90 in New York yesterday and silver closed at $18.28, down 5 cents. Gold remained at these levels in Asia but has fallen near to yesterday’s lows in early trading in Europe.

Oil has fallen marginally <$144.40 down 0.6% – Light Sweet Crude Oil Future – Combined – AUG08> and the dollar is flat after yesterday’s strong gains.

Yesterday gold was sold extremely aggressively immediately after the U.S. jobs report was released at 1330 GMT. Gold fell $18 or nearly 2% in ten minutes on an estimated volume of over 71,000 contracts which was a notable 51.3% of the whole day. Gold subsequently rallied some $10 but the rally was turned back, although gold finished well above the early morning lows. Despite gold only being up $2 on the Comex on Wednesday, open interest rose a significant 4,771 lots, or 14.84 tonnes. Thus, in just four business days open interest has risen 30,423 lots – 94.63 tonnes or 7.45%. Yet, gold has risen in this period only 3.25% indicating that there have been some very large determined sellers in recent days.

The ECB increased interest rates by 25 basis points as expected pushing the base Euro-zone interest rate to its highest level in seven years. But markets fixated on Trichet’s comments regarding not having a ‘bias’ towards future moves. Although Trichet was slightly less hawkish than the previous day (when he warned of “explosive” inflation), he remained quite hawkish. He spoke of the ECB doing all in their powers to contain inflation and warned of “increasing upside risks to price stability over the medium term.”

Some analysts said that the ECB’s less hawkish tone may have led to dollar strength and gold weakness. This is unlikely as gold was flat throughout Trichet’s conference and only sold off on the jobs report. Similarly, the dollar and stock markets only rallied sharply on the release of the jobs report and had not moved much during Trichet’s conference.

U.S. Jobs Report Slightly Worse than Expected; Based on BLS Statistical Assumptions

Gold’s sell off on the jobs number was unusual as the number was neutral to negative at best and coming in lower than expected (at -62k lower than the expected reading of -60k). Of importance was the fact that the number was based on massive statistical assumptions.

Thus, the jobs report was difficult to fathom and some have questioned its validity due to statistical gimmickry. The birth-death model added 177k jobs. The birth-death model allows the Labour Department to make guesstimates and massive assumptions regarding possible job creation due to seasonal adjustments. Incredibly, the government bureaucrats in the BLS (Bureau of Labour Statistics) said that of the 177k assumed jobs created – construction added 29k, business & professional added 22k, and leisure and hospitality added 86k. Given the deterioration in the US. construction sector and in the wider U.S. economy these assumptions are unlikely.

Black box traders and momentum followers with short term horizons can dictate the price of markets in the short term but over the medium term the deteriorating fundamentals of the U.S. economy will result in a lower dollar and a higher gold price.

Today’s Data and Influences

Activity levels are also likely to be low today with the U.S. out for the Independence Day holiday and markets will be looking to the outcome of next week’s G8 meeting. The G8 leaders are confronted with unprecedented significant challenges – most particularly the growing threat of stagflation in the international economy.

Silver

Silver is trading at $18.00/18.04 per ounce (1200 GMT).

PGMs

Platinum is trading at $2009/2019 per ounce (1200 GMT).
Palladium is trading at $450/455 per ounce (1200 GMT).

Mark O'Byrne
Executive Director

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