Gold plunged in New York trading after employment report beat the consensus estimate by a wide margin. The latest jobs data pushed the dollar higher, fueling speculations that the central bank may start scaling back monetary stimulus by the end of this year.
Labor Department said that the U.S. economy added 195,000 new jobs in June after adding 175,000 jobs in May. Economists polled by Bloomberg were expecting the economy to add 165,000 jobs. Unemployment rate remains unchanged at 7.6 percent.
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Investors Losing Faith In Gold
The yellow metal staged a rebound earlier this week after declining 23 percent in the second quarter prompted people to buy at low. The dollar index surged 1.47 percent after the jobs data to 84.45 against a basket of major currencies. Gold is down 26 percent this year so far, eliminating as much as $60.4 billion from the value of gold ETFs. Investors have begun to lose faith in the metal as a hedge against inflation. Gold prices fell 1.94 percent in the early session today to $1,227.60.
Nomura analyst Tyler Broda said in a research report that he remains bearish on gold prices. Nomura estimates the yellow metal’s 2014 equilibrium at $1070 per ounce. Broda said gold prices were helped recently by the increase in the demand of physical gold after a decline in prices. But now prospects for the increase in physical gold demand are dim as world’s largest consumer of physical gold India has increased taxes on gold import.
Non-farm Payroll Data
Non-farm payroll employment rose by 195,000 in June, but jobless rate remained unchanged at 7.6 percent, the Bureau of Labor Statistics said today. A large part of the job growth was observed in healthcare, leisure and hospitality, retail trade, professional and business services, and financial activities.
However, about 11.8 million people still remain unemployed. The number of jobless people has shown little change since February as more people are joining the workforce. On an average, U.S. economy has added 182,000 jobs a month over the past 12 months. Labor Department said that the number of people who have been unemployed for at least 27 weeks was almost unchanged in June at 4.3 million. They account for 36.7 percent of the unemployed workforce.
Federal Reserve has signaled that it would start trimming monetary stimulus when jobless rate comes down to 7 percent.