Gold fundamentals – 11/3

The latest reported U.S. employment figures were better than expected and improving (unemployment rate down to 7.7% from 7.9% a month ago), but this does not seem enough for the Federal Reserve to end its loose monetary policies.

It is expected that the Fed will keep its asset-purchase program in place for the indefinite future, at least as long as the jobless rate remains above 6.5%. Quantitative easing is the biggest reason behind the current bull market in most asset classes. However, the price of gold and other commodities has been weak lately, clearly underperforming equities and bonds this year.

The jobs data strengthened the U.S. dollar, which made a 6 month high against a basket of other major currencies. Additionally, uncertainty about Europe increased demand for the USD. Per definition, a strong dollar puts pressure on Gold, given the inverse relation between USD and the gold price.

At the same time US equity markets marked fresh multi-year highs. Equities have been the place to be for investors this year and this has been one more reason for the flow of money into the stock market instead of the commodities markets.

In the months ahead, gold traders will have to assess the strength of global economic recovery. Any improvement there will limit expectations for further monetary easing by central banks, weighing on commodity prices.