Last Updated : 03 May 2013 at 06:10 IST
Traditionally, gold has been sensitive to data releases. But today gold may remain 'indifferent' to US non-farm pay rolls data scheduled at 7.00 PM IST. Let me explain.
The data pertaining to US non-farm pay rolls pegged at 145000 for the past month would define the future of Quantitative Easing measures carried out by the US Federal Reserve; it has been for a while.
Quantitative Easing as underway in US—the fourth round-- is a monthly Treasury plus Mortgage Backed Securities repurchase programme initiated by Ben Bernanke, the US Federal Reserve Chairman and his team. US non-farm pay roll data is a measure of jobs added by the US economy in the non-farm sector.
The reason why this data is important is this:
"The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates."
While ensuring that employment figures rule at a maximum, or unemployment at a minimal level, the Federal Reserve is also supposed to maintain stable prices. In other words, while job growth should be robust, the inflation should be healthy!
Now, the Ben Bernanke team has initiated the money printing process, as sceptics call it, to achieve the first objective mainly. But, when you run the Mint virtually on a 24x7 basis, it so happens that the money supply in the economy would climb effectively raising inflation; or that is the possibility.
But with demand subdued in a recessionary ambience, the US Federal Reserve has modest rate of inflation.
This, coupled with prevailing rates of high unemployment has led the Fed to run the Mint in nitro mode. Notionally, the US Federal Reserve is not supposed to stop this process until and unless employment rates climb.
To put it in a different manner, the QE process is tethered to job market recovery.
Now, the picture is clear: if the US Federal Reserve gets a positive indication that unemployment rate is coming down, it may choose to phase out the QE measures. This may further erode the current price levels in gold. (To see how gold and QE are linked, click here)
On a positive note for the economy, US initial jobless claims for the past week has come down way below the expected levels. (Initial Jobless Claims is the data that measures the number of individuals who filed for unemployment insurance for the first time during the said time period.)
Now, if the data of US non-farm pay rolls is also positive, then gold may drop further. But given the fact that the prices are just some $200 short of the figure that requires to be maintained so as to cover the production of gold (it takes around $1200-$1300/oz to mine gold), it is unlikely that gold would tank much.
If the data is negative, which means US unemployment rates have climbed; with ETP outflows at record highs, gold may not climb high beyond a point.
(Gold ETFs are intended to mirror the per-ounce price of gold. The idea is that when investors buy shares of the ETF, the ETF adds gold; and when investors sell shares of the ETF, the ETF sells gold. This way, shares of the ETF should move in tandem with the price of gold—and as people buy or sell shares of the ETF, this should move the price of gold up or down accordingly.)
The persisting news flow from the Eurozone which portrays the headwinds in the region in doldrums ensures that gold would find some support. But the possible lacking of bad news from US would keep gold on a shaky platform.
More or less, gold would behave as if nothing much of significance has occurred.
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