Gold slips back to negative territory on upbeat U.S. data

Gold fell back to negative territory in the early U.S. session after trading mostly higher throughout the day as upbeat U.S. jobless data hinted that tomorrows non-farm payrolls and unemployment rate will probably post positive readings as well and reinforce speculations that the Federal Reserve will trim its bond purchases in September. A separate report by the ISM showed that the U.S. service sector expanded at its fastest pace in eight years.

On the Comex division of the New York Mercantile Exchange, gold futures for December delivery fell to $1 382.40 per ounce at 14:09 GMT, down 0.55% on the day. The contract ranged between days high and low of $1 399.40 and $1 379.90 per ounce respectively and extended its weekly decline to 0.9% following Thursdays plunge.

The precious metal lost positions as payrolls processor ADP (Automatic Data Processing) reported on Thursday that the U.S. private sector created 176 000 jobs in August, less than last month, and underperformed expectations for a drop to 182 000. Julys reading was revised downward to 198 000 from the initial 200 000 reported. Analysts however said that the data was good enough to expect that Fridays non-farm payrolls will mark an improvement, which respectively will boost speculations that tapering of Feds monetary stimulus will take place this month.

Paul Ashworth, an economist at Capital Economics in Toronto, said for Reuters: “(Its) enough to reinforce expectations that the Fed will begin to taper its asset purchases.”

Meanwhile, a separate report by the U.S. Labor Department showed that fewer people than projected filed for initial unemployment payments in the week ended August 31. The government agency reported that last weeks Initial Jobless Claims fell to 323 000, near a five-year low, outperforming expectations for a drop to 330 000. The preceding periods reading received an upward revision of 1 000 claims to 332 000.

The four-week moving average, which smooths out week-to-week volatility, fell to pre-recession levels. The indicator slipped by 3 000 to 328 500 claims filed, marking the lowest level since October 2007. Although this report has no direct connection to Fridays non-farm payrolls, its positive readings reinforce positive sentiment for the labor market.

Meanwhile, the final Q2 Non-Farm Productivity was reported to have increased by 2.3%, surpassing analysts expectations for a 1.6% rise after surging 0.9% in the first three months of the year. At the same time, concern over low inflation arose as the Labor Department said that Unit Labor Costs for the same period remained flat, while economists expected a 0.8% surge after a 0.4% gain in the three months to April.

In a separate report, the Institute for Supply Management said the U.S. service sector marked a major improvement in August. The institutes ISM Non-Manufacturing Composite index confounded analysts expectations for a retreat from last months reading and surged to 58.6 in August, the strongest reading since December 2005. Economists expected a fall to 55.0 from Julys 56.0 reading.

On Tuesday, the ISM reported that U.S. factory activity grew at the fastest pace in 26 months. The institute’s ISM Manufacturing index surged to 55.7 in August from 55.4 in July, confounding analysts’ expectations for a drop to 54.0. This was the highest reading since June 2011.

The dollar received a strong boost following the upbeat U.S. data. The dollar index, which measures the greenbacks performance against a basket of six major counterparts, rose by 0.46% to a new days high of 82.58 at 14:07 GMT. Days low remained at 82.13. The U.S. currency gauge slipped 0.3% on Wednesday but extended its weekly advance to 0.5% following Thursdays gains.

This comes after last Thursday the Commerce Department reported that the U.S. economy grew more in the second quarter than previously estimated in July. The U.S. Preliminary (Revised) GDP marked a growth of 2.5% from a year earlier, compared to the flash reading of 1.7% published on July 31 and surpassing analysts’ expectations for a correction to a 2.2% advance.

Market players are awaiting tomorrows highly anticipated non-farm payrolls and unemployment rate to gauge whether the U.S. labor market remains fragile and build up expectations for the outcome of FOMCs meeting on September 17-18. Non-farm payrolls are expected to have risen by 180 000 in August from 162 000 in July, sighting a consistent recovery of the labor market, while the unemployment rate is likely to remain unchanged at 7.4%, according to economists in a Reuters poll. Also on Friday, Average Hourly Earnings and Average Weekly Hours are projected to have marked an improvement as well.