Weak jobs report Friday could push gold prices back above $1,300

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After breaking above $1,300 earlier this week to hit 15-month highs, gold has seen a bout of profit taking ahead of Fridays widely watched nonfarm-payrolls report from the U.S. Labor Department.

The metal was trading near $1,280 Wednesday afternoon, up from session lows of $1,270 but held in check by a rebound in the U.S. dollar. Despite the dip, gold still has gained about 20% on the year. Silver was down but maintaining the $17 level, trading near $17.32.

Hawkish statements from top Federal Reserve officials, mainly President Dennis Lockhart of the Atlanta Fed, helped boost the buck and take some steam out of golds ascent. Lockhart said an interest-rate increase remains a real option at the central banks June meeting.

Helicopter cash coming, Gross says: Of course, investors should take such statements with a grain of salt because the Fed has a vested interest in pretending that its policies are working instead of failing to goose U.S. growth. Some top Wall Street figures dont see a rate hike coming, including bond guru Bill Gross of Janus, who went so far as to predict more quantitative easing via so-called helicopter money to stimulate the economy.

Drop the money from helicopters, wrote Gross. There is a rude end to flying helicopters, but the alternative is an immediate visit to austerity rehab and an extended recession. I suspect politicians and central bankers will choose to fly, instead of die. Gross predicted more QE perhaps even in the U.S. in a year or so.

Private-payrolls report tanks: Given the slew of disappointing economic data this week, Gross might be correct. Although the trade deficit shrank and the PMI services-sector gauge rebounded, the Automatic Data Processings tally of private-sector job creation fell short Wednesday, with only 156,000 positions materializing versus 195,000 expected the worst tally in three years. And while durable-goods orders rose in March, gains were largely driven by defense spending; year-over-year core durable-goods orders actually fell for the 14th month to their lowest level since 2013. Meanwhile, U.S. productivity continues to slump.

Fridays jobs report will be key to gauging the health of the jobs market and therefore the likelihood of fresh rate hiking from the Fed. The payrolls report also will be important for gold prices. A weaker U.S. employment report on Friday will push gold prices back above $1,300, ABN Amro analyst Georgette Boele told Reuters. Speculative positions are in excessive territory, but they could remain there for quite some time, meaning prices could go lot higher before the correction starts.

$1,200 support key to golds run higher: And even if a deeper correction strikes, as long as $1,200 holds, gold could be poised to move higher. Assuming a correction/pullback from the $1,300-1,307 resistance area over the coming session holds above the $1,200 area, we will have further evidence of a more significant reversal taking shape in gold, CLSA technical analysts wrote. Such a move would form the right shoulder of a more than a two-year basing pattern (inverse head-and-shoulders base) which would ultimately support an upside target of $1,600-1,610.

Another bullish sign for gold is open interest. Open interest, a tally of outstanding contracts in Comex futures, rose to the highest in five years on Monday, showing traders are expecting further increases, Bloomberg reported.

Theres a lot more interest in gold and were seeing a lot of people looking to enter gold, RJO Futures strategist Bob Haberkorn said. Were seeing a lot of new buying coming in. Overall, the sentiment toward gold is extremely bullish.

Miners struggling to meet demand: And longer-term, supply-and-demand constraints continue to support gold. Top South African miner Randgold expects bullion to stay supported between $1,000 and $1,400 this year, with CEO Mark Bristow remarking, Fundamentally our industry is struggling to deliver the gold thats being demanded.

Citing the spread of negative interest rates around the world, Saxo Bank economist Kay Van-Petersen is even more bullish, predicting the metal will hit $1,500 in the next six to 18 months. No one knows how this ends, he said. But one thing is for sure now, its a game of capital preservation. There is no holy grail, but from a macro-perspective, I think you have to look at precious metals.