Gold Price Holds $1,130 Following Jobs Data


"Negative real interest rates have historically been associated with gold bull markets."

The gold price hovered near unchanged, trading at $1,133.50 per ounce, following the release of the U.S. employment report. The price of gold initially declined on the better than expected headline numbers before bouncing back as the market digested an unemployment rate that shows very few signs of moving markedly away from 10%. Nonfarm payrolls fell 36,000 versus market expectations of 68,000 job losses while the unemployment rate dropped 0.1% to 9.7%. ]

The price of gold has surged over the past month, rising $101 from the low posted in early February - a rally that, over the same time frame, has boosted the share price of the gold mining producers by 11.9%, as measured by the Market Vectors Gold Mining ETF (GDX).

With unemployment still hovering near 10%, it is highly unlikely there will be any move in the fed funds rate in the near future. As noted by Macquarie’s equity research team - since 1950, the Federal Reserve has never raised rates with unemployment above 7.7%. With the labor participation shrinking, the true unemployment rate is actually much higher, near 12% according to David Malpass, chief economist at Encima Global.

St. Louis Federal Reserve President James Bullard told reporters yesterday that the recovery is in very early stages and monetary policy should remain "very accommodative."

This "check writing" by government, as termed by PIMCO's Bill Gross, has been a global phenomenon, leading to strong rallies in the gold price as measured by all of the world's major currencies. In terms of the euro and the British pound, the gold price has recently hit all-time highs.

Negative real interest rates have historically been associated with gold bull markets. The longer real rates trade below zero, the faster the currency degradation—which provides a tailwind for a higher gold price.

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