Gold Price Surges, Jobs Data Fuels QE3 Expectations

GOLD PRICE NEWS – The gold price surged higher on Friday after the monthly U.S. jobs report came in below expectations and raised expectations for a third round of quantitative easing (QE3) by the Federal Reserve.  The price of gold jumped as much as $37.21, or 2.2%, to $1,738.21 per ounce following the employment data, while the U.S. Dollar Index fell 0.9% to 80.338.  With today’s advance, the gold price reached its best level since February 29th and extended its year-to-date gain to 11.2%.

Not to be outdone, silver climbed by $0.92, or 2.8%, to $33.63 per ounce after the non-farm payrolls data was released.  In doing so, silver hit its best level since March 13th and stretched its advance in 2012 to 21.3%.

Gold shares posted strong gains alongside the gold price this morning, as the Market Vectors Gold Miners ETF (GDX) rallied as much as $1.58, or 3.2%, to $50.71 per share.  The gold sector has been on a tear of late, with the GDX now having soared 25.5% since hitting a multi-month low of $40.40 on July 24th.  Among the large-cap gold producers, two of today’s best performers were Kinross Gold (KGC) and Randgold Resources (GOLD) – which jumped by 6.0% to $9.68 and by 3.8% to $112.82 per share, respectively.

With regard to the employment data, non-farm payrolls in August increased by just 96,000 – well below the 130,000 consensus estimate among economists.  Adding to the negative news was a downward revision to the July data, from 163,000 to 141,000.  While the unemployment rate fell from 8.3% to 8.1% in August, this was largely due to a rise in people that gave up looking for work.

Overall, the disappointing data served as a strong reminder of the fragile state in which the U.S. economy remains.  Judging by the positive reaction in the gold price and the sell-off in the U.S. dollar, investors are viewing the report as tipping the scales toward QE3 at the Fed’s meeting next week.

Daniel Briesemann, a commodities analyst at Commerzbank, echoed this sentiment in comments he made on Friday.  The price of gold “is going through the roof because this negative data makes QE3 more likely now. There is a chance that Bernanke will announce QE3 already next week, that means pumping more money into the market so gold becomes a more attractive investment due to inflation fears.”

Noureil Roubini, the NYU economist who predicted much of the 2008 financial crisis, wrote on his Twitter account “Quite dismal employment report confirming anemic US economic growth…QE3 is only a matter of when not whether.”