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Stronger Job Market Sends Gold Prices Lower

gold pricesBased on reports released by the Bureau of Labor Statistics that showed a stronger-than-anticipated job market, the price of gold prices fell to a four-year low. This decline deepened investor’s concerns regarding how quickly interest rates would be increased by the Federal Reserve.

For several months, the price of precious metals has slid. As a result, investors have maintained a watchful eye on the Fed since higher interest rates would probably weaken gold demand, a commodity that pays zero interest.

There is no move expected by the central bank until sometime next year but because investors are trying to stay one-step ahead of the Fed, gold could be pushed lower by year-end 2014 for the second consecutive year.

Last month, 248,000 US non-farm payroll jobs were added, surpassing the forecast by top economists of 215,000. Since June, this has been the fastest job growth reported.

According to Bob Haberkorn, senior commodities broker with Chicago-based RJO Futures, this type of job data indicates the Fed will increase rates sooner than later.

On the Comex division of the New York Mercantile Exchange, the most actively traded gold contract for December delivery declined 1.8% to $22.20 this past Friday, to $1,192.90 per troy ounce, thereby eradicating futures’ gains for the year.

For October delivery, the front-month contract dropped 1.8% to $22, or $1,192.20 per troy ounce. These two contracts represented the lowest settlement prices since August 2010.

In a previous statement, the Fed expressed that a stronger job market would create opportunities to tighten monetary policy after stimulus efforts by the central bank had settled down.

Investors’ demand for gold and other protective assets could be energized by hardy US growth. Typically, demand for investments such as stocks and bonds that benefit from a growing economy are boosted by a brighter outlook.

Frank McGhee, senior precious-metals dealer with Integrated Brokerage Services LLC stated that the US economy, at least for the foreseeable future, can help ease woes experienced by the rest of the world.

From a separate survey, the US unemployment rate dropped 5.9% in September, down from 6.1% the prior month. Adam Klopfenstein, senior market strategist with Archer Financial Services LLC adds there is definitely forward movement on the job front.

Adding to gold’s decline but also putting pressure on prices for other precious metals is a rally in the US dollar. The ICE Dollar Index, which tracks the dollar against several other foreign currencies, skyrocketed to the highest level of over four years at 86.746.

Gold, platinum, silver, and palladium all trade in US dollars. When the dollar strengthens against other countries’ currencies, precious metals become more expensive for foreign buyers. Klopfenstein said that metals are being devastated because of the current excitement over the US dollar.

For January, platinum dropped 3.4% to 1,226.90 an ounce, hitting a five-year low. The December trading of silver futures returned to 4.5-year lows, falling 1.1% to $16.826 per troy ounce. For palladium, December delivery declined 1.8% to $754.55 per ounce, the lowest settlement price since March.

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