Midday Market Update Sept 12: Gold Breaks Through Support on Suspicious Jobless Claims

September 12th, 2013 by

Risk-on market attitudes, borne by good economic news and the decreased likelihood of U.S. attacks on Syria has softened the precious metals market recently. When gold broke under the 100-day moving average of $1,355 near the open of European trading, sell stops were triggered that rapidly took it under $1,350.

An aberrant first-time jobless claims report this morning that showed a massive decrease in firings in the U.S. caused gold to briefly drop to a four-week low of $1,325.70. The labor Department reported that 31,000 fewer people applied for unemployment for the first time last week, the lowest level since April 2006.  This caused the dollar to blip up and precious metals to slide, but the stock market curiously  blew the report off.

One big reason why is probably that one large state and one small state overhauled their unemployment agency networks last week, and both reported abnormally low applications for unemployment. The numbers, which will doubtlessly be revised upwards, showed first-time jobless claims dropped by 31,000 to 292,000. The four-week moving average declined 7,500 to 321.250. Continuing unemployment claims dropped 73,000 to 2.87 million, and those on extended unemployment programs fell 40,000 to 1.46 million.

An unexpected drop in industrial output in the European Union halted a rally in the market there that had taken stocks close to 5-year highs. In Japan, the Nikkei was down .26% in up-and-down trade, after posting a 7-week high yesterday.

Of course, everyone and their dog are watching the calendar, with the start of the Fed Open Market Committee meeting for September only five days away. The market seems resigned to the fact that the “free money party” is drawing to a close. The only question now is by how much the Fed will reduce it’s $85 billion a month of purchases of bonds and mortgage-backed securities in this first step?

by David Peterson