Gold falls following positive U.S. data; dollar index at 3-year high

Gold plunged on Friday following positive readings of U.S. unemployment data that spurred concern over an earlier-than-expected deceleration of Feds bond purchasing program. The dollar extended positions against its major counterparts with the dollar index hitting a 3-year high.

On the Comex division of the New York Mercantile Exchange, gold futures for August delivery traded at $1 221.55 per troy ounce at 13:23 GMT, down 2.42%. Prices ranged between days high at $1 249.75 and low of $1 216.35, which was minutes after the data was published. The precious metal completely erased earlier weekly gains, plunging towards the red scale. Gold now stands 0.9% lower on the week after it settled 4.77% last week and 6.80% the preceding one.

Gold was heavily pressured as concern once again arose that the U.S. central bank will start tapering its monetary easing program during the second half of the year, supported by yet another batch of positive economic news. The Unemployment Rate for June in the worlds biggest economy remained unchanged at 7.6% compared to May, but failed to meet expectations of a decline to 7.5%. However, the Change in Non-Farm Payrolls indicator surpassed expectations for a 165 000 reading, surging to 195 000, aligning to Mays revised reading and showing a consistent improvement of the U.S. labor market.

Average Weekly Hours met projections and remained the same compared to June at 34.5 hours, whereas Average Hourly Earnings surged to 0.4%, surpassing projections of a 0.2% gain and above Mays 0.1% revised reading.

The exceedingly positive U.S. unemployment data figures shot the dollar up, extending positions versus all major counterparts. The dollar index, which measures the greenbacks performance against its main peers, jumped by more than 0.8% on the day. The U.S. currency gauge for September settlement traded at 84.69 at 13:24 GMT after hitting a three-year high at 84.79 minutes after the data was published. Days low stood at 84.07 during the Asian session. It has advanced more than 1.5% so far this week after settling 0.98% and 2.21% higher last week and the preceding one, respectively.

Brian Booth, a senior market strategist at Long Leaf Trading Group in Chicago, said for Bloomberg: “A better jobs report means there’s less flight to safety. he initial reaction to the report was a push higher in the dollar and a rise in stocks, and for as long as that continues, gold will struggle.”

The dollar tends to trade inversely to gold. Strengthening of the greenback reduces the appeal of dollar-priced commodities as an alternative investment and makes them more expensive for foreign currency holders.

Gold has been tracking shifting expectations for an earlier-than-expected deceleration of Fed’s Quantitative Easing throughout the year. The precious metal crumbled around 23% in the second quarter as Ben Bernanke, Fed chairman, announced the central bank will most likely scale back its bond purchasing program during the second half of the year, if the economy’s recovery keeps in line with Fed’s expectations. According to Bernanke, Fed’s moves are tied to what happens in the economy and the central bank has no fixed plan, but sentiment points at reducing bond purchases. Bernanke said that if the economy continues to improve in line with Fed’s projections, it would be “appropriate to moderate the monthly pace of purchases later this year”, and end the program as the unemployment rate drops to 7%, which Fed expects to happen around mid-2014.

As expected, the positive jobless readings further pressured gold since it is used mainly as a hedging strategy against inflationary effects, which arise amid loose monetary policies, such as Quantitative Easing. An earlier deceleration of Fed’s bond purchasing program will additionally cripple gold’s demand.

Elsewhere on the precious metals market, silver, platinum and palladium all tracked golds direction and marked major daily losses. Silver for September delivery fell 4.01% on the day to trade at $18.910 at 13:20 GMT. Prices ranged between days high and low of $19.583 and $18.828 respectively. Meanwhile, platinum October futures stood at $1 322.50 an ounce, down 1.80% for the day. The metal held in ranged between $1 348.70 and $1 321.45. Palladium for September delivery traded at $669.60, marking a 2.35% loss. Prices ranged between days high and low of $679.00 and $668.30 respectively.