Gold spiked higher on the news that a mere 18,000 nonfarm payrolls were created last month

The gold price surged higher to $1,538 per ounce higher Friday morning after the release of June’s dismal jobs report. After trading lower earlier, the price of gold spiked higher on the news that a mere 18,000 nonfarm payrolls were created last month – versus expectations of 105,000. The unemployment rate ticked up to 9.2%, higher by 0.1% versus the previous month. Both gold and silver moved lower heading into the jobs data, then ramped as the news hit the tape.

The anticipated hike in the Eurozone benchmark rate gave the expected impetus to the euro, although this only occurred later in the day after the US markets opened. A probable reason for this was a focus on concerns over the region’s debt crisis, as Trichet dismissed the idea of a medium-term lending facility for Ireland. Despite the delayed reaction of the euro, Gold
responded almost immediately to the ECB announcement. All made good gains in the afternoon session, although gold appeared as somewhat of a laggard, hinting that investors are beginning to feel that gold is a bit overbought at these levels.

physical Gold selling is subdued with Indian demand still strong

As expected, the negative effect of yesterday’s announcement of a hike in Chinese interest rates proved to be short-lived. It was not long before the focus returned to concerns over the Eurozone debt crisis. Moody’s cut Portugal’s sovereign debt rating to below investment grade this week. In addition, the US debt-ceiling debate is also shaking the markets confidence.

President Obama is struggling to reach a compromise with Republicans who insist on spending cuts before they will agree to an increase in the US government’s borrowing limit. The risk-off sentiment maintained the upward momentum in overnight trade of gold and silver, after Asian markets initially opened as sellers. Despite the push in gold prices, physical Gold selling is subdued with Indian demand still strong. This leads us to believe that Indian buyers foresee further upside and are taking current prices in the fear that they might miss the dip. This, is coupled with risk aversion, is lending robust support gold.

The reaction of the euro to this afternoon’s ECB decision will be key to precious metal movements later today. The market largely anticipates a hike in rates which, given that this should support the euro, could benefit precious metals. This, coupled with a heightened aversion to risk, could spell further upside for gold and silver.

Gold support is at $1,514 and $1,500. Resistance is $1,539 and $1,549.

gold price climbed $7.10 to $1,523

The gold price climbed $7.10 to $1,523 Wednesday after China raised interest rates for the third time this year. The price of gold fell as low as $1,510 per ounce before bouncing back above $1,520 after the People’s Bank of China announced that the one-year lending rate will rise to 6.56% from 6.31%, effective today.

While gold dipped $5.50 to $1,510.50 early Wednesday morning, the outlook for the Gold and companies that mine gold is improving according to a growing number of investment strategists and analysts.

In a research note published yesterday, CIBC World Markets’ technical team highlighted a number of reasons why the gold mining sector is currently attractive:

“June/July is historically a trough period for gold stocks (historically returning -1.5%), but this trough is usually followed by a nice rally in the later half of the summer months”

“80% of materials stocks are currently in a consolidation phase that has been ongoing since Nov/Dec of 2010 (long in the tooth….). What does this mean? It’s time to buy some gold stocks as we expect them to gradually move higher from here.”

“Some of the names that Sid noted are particularly oversold include ELD, SMF, AGI, and AEM. Eldorado is the name that exhibits the most oversold conditions and we recommend this name to be bought aggressively at these levels. The name also ranks very well from a fundamental standpoint, comes with a peer leading growth profile, and is Barry’s top pick (SO Rating, US$23 target)…Bottom line, buy gold.”

“Headline Risks” Emerge in Europe, China

Commenting on several “headline risks” emerging in recent days, J.P. Morgan’s Michael Jansen wrote the following in a note to clients this morning:

“There is a touch more headline risk about today. The first is that Fitch has been vocal in commenting that it would treat the planned French debt forgiveness/debt rollover plan as a technical default, a view which has similarly been embraced by S&P today. Moodys is the odd one out thus far as it relates to Greek debt defaults, but it has further soured the mood by releasing a report overnight saying that China’s local government debt may be RMB3.5 trillion larger than originally estimated.”

“This is a potential precursor to the agency downgrading the credit worthiness of Chinese banks and may add to unease in the investment community around the underlying robustness of the Chinese economy as Beijing seeks to evolve the growth model from one of investment/trade towards one of consumption. China bear.”

Despite the aforementioned headwinds, however, Jansen contended that “The expectation is that the debt ceiling debate in the US will deliver a compromise solution to avoid the US experiencing a technical default at a time that the European community is searching for an option that allows Greece to default on its debt without the ratings agencies declaring it as such (which would hinder the ECB’s ability to take Greek debt as collateral).”

“We hold the view that most of the event risk can be contained and that Greece will be allowed to roll-over its debt without a declared default,” he continued, “while the debt ceiling in the US will be extended allowing the machinery of government to operate.”

Gold open interest stood at 1,579 tonnes on COMEX

The decline in open interest appears to be gaining momentum, having shed 61.9 tonnes over the past week. As of last

• Friday, gold open interest stood at 1,579 tonnes on COMEX, still well below last year’s average of 1,787 tonnes, and closing in on the 1,481.9 tonne low for the year. Accompanying the fall in open interest was a 1.0% w/w slide in prices.
• Net speculative length fell sharply, at 142.2 tonnes lost over the week. The net speculative position for gold now stands at 625.5 tonnes — now well below last year’s average of 777.6 tonnes. This decrease was due to a drop of 145.4 tonnes in speculative longs, with a modest decrease of 3.2 tonnes in speculative shorts providing limited relief. Although the sharp fall in net speculative length underscores the susceptibility of gold to speculative sell-offs, we still feel that, from a fundamental perspective, there is potential for further upside over the medium term. We would, however, caution that over the short term, given that speculative short positions are currently at 123.1 tonnes, well above last year’s average (90.7 tonnes), sentiment is less supportive — which could see the gold market more volatile than usual.
• Although ETF holdings of gold have come off, it was only modest, at only 0.3 tonnes lost. We therefore still believe that investor interest in gold has not completely evaporated.
• Net speculative length as a percentage of open interest has dropped off sharply. Currently it stands at 27.6%, which is well below the 31% average seen during 2010. This indicates a market that is not at all overextended.

Gold price sliding $11.50 to $1,488.50 per ounce

The gold price fell back under $1,500 per ounce Friday morning, sliding $11.50 to $1,488.50 per ounce. Precious metals and commodities were weaker across the board, led by a 2.1% drop in the silver price to $33.96 per ounce and a 0.9% fall in crude oil to $94.56 per barrel. While the gold price declined, the U.S. dollar traded flat versus the euro and most of its foreign counterparts.

Commenting on the implications for the gold price, Dan Smith, a metals analyst with Standard Chartered, wrote in a note to clients that although the Greek vote is not supportive of gold, other economic factors have helped keep the gold price north of $1,500 per ounce. “We see a lot of confusion about the Greek situation. The whole situation in Europe is distorted,” Smith stated. “There has been some safe-haven buying because of Greece and it’s coming out of the market now … But the long-term story is still bullish for gold. Investors are looking for protection against event risk.”

With real interest rates still negative across most of the globe, the fundamental macro-economic backdrop for the gold price remains supportive. The big question entering the second half of 2011 is whether gold mining stocks will be able to end their consistent underperformance of the gold price, a phenomenon that has driven many investors to shun the gold stocks in favor of the more direct leverage offered by exchange-traded funds.

Gold succumbed to some selling pressure from increased risk-taking

As largely anticipated, the Greece parliament has ratified the planned austerity measures. In the immediate aftermath of the vote,Gold succumbed to some selling pressure from increased risk-taking. However, with the opening of markets in the US, enthusiasm across the asset classes saw precious metals well bid. This enthusiasm for precious metals lost momentum in overnight Asian trade, as risk-on sentiment reduced the appeal of the traditional safe havens. As mentioned yesterday, we believe that upside for Gold, is still in the offing. With the distraction of the Greek vote out of the way now, the focus will now shift to today's PMI manufacturing data.

Our expectations regarding the PMI manufacturing data, specifically for China (which we have held since April), remain unchanged — given the strong seasonal patterns in PMI manufacturing data, combined with China’s monetary tightening, we would not be surprised to see, by the end of July, the PMI manufacturing reading indicating that Chinese manufacturing is contracting. As a result, we would look for the PMI data to confirm a decline today, followed by another decline next month.

Together with PMI data out of the US and Europe, which will most likely confirm the weakness of the global economy, this should reignite demand for the safety of Gold.

Gold support is at $1,501 and $1,494.