Fool's Gold Report: Jobs Send Gold Over $1,300, but Will the Gains Last?

Gold investors had looked forward to Friday's jobs reports all week, and they weren't disappointed by the lackluster data from the Bureau of Labor Statistics this morning. Nonfarm payroll gains of 192,000 fell below expectations, and an unchanged unemployment rate of 6.7% helped lead to solid gains in precious metals, pushing SPDR Gold Shares (NYSEMKT: GLD  ) up 1.3%. Silver, platinum, and palladium also gained, but mining companies were muted in their reaction.

How metals moved today
June gold futures jumped almost $19 per ounce Friday, to $1,303.50, which marked a bigger percentage gain than SPDR Gold Shares managed. Silver's gain was less dramatic, with gains of $0.14 per ounce in the May futures contract still leaving the price below the key $20 mark, at $19.946.

Metal

Today's Spot Price and Change From Previous Day

Gold

$1,302, up $15

Silver

$19.96, up $0.14

Platinum

$1,444, up $7

Palladium

$786, up $1

Source: Kitco. As of market close.

Image sources: Wikimedia Commons; Creative Commons/Armin Kubelbeck.

On the jobs front, this morning's report fell just short of expectations. Economists had hoped to see as many as 200,000 new jobs, and they'd especially expected a drop in the unemployment rate to 6.6%. But an extensive rise in the size of the labor force in March helped keep unemployment steady even with the rise in payrolls, and that had some gold investors looking for further potential moves from the Federal Reserve to try to stimulate the U.S. economy. Gains for SPDR Gold Shares climbed into the late-morning hours, and the bullion ETF held onto those gains throughout the day.

Yet, most people still believe that the Fed won't do anything to change its downward trend on its bond-buying activity under quantitative easing absent a much larger disruption to the broader economy. With signs that the winter pause was just a seasonable aberration, the Fed will likely remain on course to eliminate new bond buying by the end of 2014. If an increase in interest rates results, then it would likely be negative for SPDR Gold Shares and for gold prices in the spot and futures markets.

Looking at platinum
Meanwhile, beyond gold, many precious-metals investors still prefer the prospects for platinum-group metals. Analysts at HSBC didn't change their projections for a rise in platinum next year to $1,850, and for palladium to hit $900, but they cited the ongoing strike against South African platinum-group metals miners, as well as strong auto demand for catalytic converters, and jewelry buying from China. With projections of supply deficits in the market expanding, platinum could climb even further.

That was only part of the good news for platinum-group specialist Stillwater Mining (NYSE: SWC  ) , which gained almost 2% today. Stillwater Mining also got a favorable recommendation from analysts at BB&T, which initiated coverage with a buy rating and an $18 price target, which is about 15% above its current price. In the past, Stillwater Mining got criticized for diversifying beyond platinum and palladium by buying gold and copper producer Peregrine Metals in a 2011 deal, as its timing proved to be unfortunate. Still, with solid exposure to platinum-group metals, Stillwater remains one of the only ways to get stock exposure to the industry.

Next week, the key for gold will be whether it can hold its gains from this week. Without further positive news, gold might not be able to hang onto the $1,300 level very long.

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  • Report this Comment On April 06, 2014, at 12:07 AM, TigerPack1 wrote:

    I am still upset a week later about the total bs and misinformation in this bloomberg article being handed to (and accepted by) the general public about aspects of the PONZI fraud run by Wall Street and the Federal Reserve on investors...

    http://www.bloombergview.com/articles/2014-03-28/the-real-pr...

    As I expressed in several comments at the bottom of the bloomberg article itself, this chart is quite flawed using rigged CPI calculations. Under-reporting of CPI or whatever government inflation calculation you want to use, exaggerates the current gold value or "adjusted" price on a long-term chart.

    A better way to "value" gold vs. historical norms is first and foremost to compare and contrast prevailing prices to the global cost of production. The long-term average prevailing price over hundreds of years is closer 2x the cost of production for gold, else no new mines would originate to replace depleted ones. With a cost of production today in the $900 to $1200US an ounce range, depending on what you want to count as realistic operational expense to keep mining gold past 2014-15, $1300 is on the lower end of any type of "average" you can devise. I would put today's gold quote in the 20th percentile for the last 100 years of data I can find for price vs. its equivalent cost of production. The only instance where the gold price sold substantially below the cost of production was 1997-2003, when western banks tried to kill gold's allure once and for all, and failed miserably.

    Considering most nonrenewable resources on the planet are nearing depletion in the next 10-20 years, the nominal cost of mining gold/silver will surely outpace CPI or any realistic inflation increase coming down the road. If demand for gold grows with the planet's population of 1.5% to 2.0% annually like the past few decades, new precious metals supply cannot keep pace with the demand increases approaching soon.

    Another way I look at gold is comparing the actual gold backing (unofficially today) for the M-1 money supply. If you use the reported gold holdings at Fort Knox and the NY Fed, which may or may not actually exist, today's spot gold price multiplied by the ounces owned in official records, divided by the current M-1 reading (cash in circulation) gets you to around $0.15 in gold backing per dollar in circulation in March 2014.

    The high for this reading the last 45 years is about $0.60 in January 1980 for each $1.00 in paper money in circulation (which led to a very strong Dollar rally vs. other currencies for 5 years not coincidentally). In December 1974 this number was $0.21, in December 1987 a little over $0.20, and approached $0.30 in August 2011 at cycle highs. The lows were $0.06 in January 1970, $0.16 in December 1985, $0.10 in December 1992, and $0.07 in January 2001.

    Believe it or not, we are at a BELOW average number for the last 45 years since leaving an official gold standard for U.S. Dollar bills. Today's $0.15 number is less than the $0.17 mean average since 1969. Plus you have to gulp and believe the actual gold holdings reported by the Feds actually do exist. If they do not exist from forward sales and swaps sold many years ago under his majesty sir Alan Greenspan (as many including myself conclude), the gold holdings/backing per Dollar at spot market prices are likely much LOWER than the $0.15 number I come up with.... it could be as low as ZERO!

    If we continue to print 10% more each year in M-1 dollars, like we have since 2008, one would EXPECT the price of gold to rise by 10% also annually in the future, if we remain at the same implied hard money backing for dollars.

    However, if it becomes more evident that the government is lying about its gold holdings, and the U.S. in fact holds little physical unencumbered gold reserves, the price could skyrocket in U.S. Dollars soon even if gold does not rise much in foreign currencies. The gold market could be at a critical point in 2014, with Germany and other nations demanding their gold holdings be moved from the U.S. central bank and COMEX deliverable gold inventories nearly exhausted. A loss of faith in the U.S. Dollar could approach quickly, and a perfect storm leading to hyperinflation may be brewing soon.

    Food for thought!

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