Gold Futures Fall

US gold futures fell below $1,200 an ounce on Friday and the dollar gained after US jobs data showed that the US shed 11,000 jobs in November rather than the 130,000 that had been forecast earlier. Gold fell and the dollar gained against the euro and yen on the positive jobs data. The US unemployment rate fell from a 26 year high of 10.2% to 10.0%. The strong jobs report prompted speculation that the US Federal Reserve may raise rates sooner than expected. A rate hike would make dollar denominated assets more attractive to investors. Paresh Upadhyaya of Putnam Investments stated, “The market is pricing in more scope for changes in Fed policy, meaning, higher interest rates. That’s why we’re seeing a rally in the dollar. But I wouldn’t put too much into this dollar rally. First of all, it’s a Friday and its December, so there’s usually very poor liquidity. If anything, this is a technical washout.”

Euro Falls Below $1.50

The euro fell below $1.49 and may be headed for its largest one day fall since June. In early afternoon trading the euro was down 1.5 percent at $1.4840. The ICE Futures’ dollar index rose 1.6% to 75.85 the largest one day gain since October 2008. The dollar index has declined 7% this year as traders and investors speculated that US recovery would be slow and prolonged and that the Federal Reserve would keep rates at historic lows. Fabian Eliasson of Mizuho Corporate Bank said, “A jobs recovery is the last piece of the puzzle before we can say we’re in full recovery, so it raises the question that maybe rates will go up sooner rather than later. That’s pushed the dollar higher.”

Investors Speculate About Fed Rate Hikes

Recent Fed statements about keeping rates low for an ‘extended period’ have prompted investors to use the dollar to fund carry trades. Eliasson stated, “If (signs of a job recovery) continue, you may start to see the dollar rally on strong data rather than the opposite.”