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Gold Futures Drop as Payrolls in U.S. Surge by Most Since 2012

Written by Veldt Gold
Dec 5, 2014

Gold slumped after the U.S. added the largest number of jobs in almost three years, fueling concern that the Federal Reserve will move closer to raising interest rates. Silver declined.

Prices for gold options betting on a rally tumbled, and the metal’s 60-day historical volatility climbed to the highest since March. The dollar rose to the highest since 2009 against a basket of currencies, cutting the appeal of bullion as an alternative asset.

Futures fell to a four-year low last month on waning demand for the metal as a store of value. Employers in the U.S. added 321,000 jobs in November, the most since January 2012. The report boosted speculation that Fed policy makers will be assured the economy is strong enough to withstand an increase in borrowing costs next year.

“A selloff in gold is inevitable with these kind of numbers,” Chris Gaffney, the senior market strategist at EverBank Wealth Management in St. Louis, said in a telephone interview after the report. “This tells us rates will rise sooner rather than later.”

Gold futures for February delivery dropped 1.4 percent to settle at $1,190.40 an ounce at 1:49 p.m. on the Comex in New York. Prices touched $1,130.40 on Nov. 7, the lowest since 2010.

The outlook for higher interest rates erodes the allure of the metal, which generally offers investors returns through increasing prices. Holdings in global exchange-traded funds backed by bullion are at the lowest since 2009, heading for a seventh straight week of declines. Investor demand for precious metals has waned amid a rally for equities and the dollar and as inflation remained low.

Options Trading

Today’s most-actively traded gold option was a call giving owners the right buy January futures at $1,230. The price for the contract fell 55 percent, a record decline.

“The jobs data brought in a lot of sellers,” Alfonso Esparza, a senior currency analyst in Toronto at Oanda Corp. “With the dollar continuing to march ahead we should see gold continue to trade weak.”

Gold traders often track energy prices and their impact on inflation. Oil has collapsed into a bear market as U.S. output climbed to the highest in more than three decades. Fed officials have said that lower energy prices may hold down consumer costs in the near term. Crude futures in New York fell as much as 2.5 percent today.

The metal in 2013 tumbled 28 percent, ending a 12-year bull run. Prices climbed 70 percent from December 2008 to June 2011 as the Fed bought debt and held borrowing costs near zero percent in a bid to shore up economic growth. The central bank ended its third round of bond purchases in October.

Silver Slides

Silver futures for March delivery declined 1.9 percent to $16.258 an ounce on the Comex, the biggest loss for a most-active contract in a week.

On the New York Mercantile Exchange, platinum futures for January delivery dropped 2.1 percent to $1,219.50 an ounce, the most since Oct. 3. Palladium futures for March delivery gained 0.1 percent to $802.70 an ounce.

This year, gold prices have fallen 1 percent, while silver retreated 16 percent. Palladium prices are up 12 percent, and platinum slipped 11 percent.

For more information, please visit Bloomberg