Gold's Climb Toward $1,400 Intact
Gold closed in on $1,400 as traders reconsidered the day's strong jobs report and began questioning how long increases in U.S. employment will last.
That pessimism heightened concerns of a more-protracted period of dollar weakness and higher risks of inflation just two days after the Federal Reserve announced a $600 billion program of Treasury purchases aimed at stimulating the dragging U.S. economy.
Investors often turn to the yellow metal to protect themselves against the prospect of broad-based price increases. While such inflation isn't anticipated anytime soon, there are worries the central bank won't be able to sop up the increased money supply fast enough whenever the economy does get back on track.
Friday's government data showing U.S. nonfarm payrolls rose by a greater-than-expected 151,000 last month initially pressured gold and supported the dollar. But as participants dug further into the data they became less optimistic, causing the greenback to pare its gains and prompting a rally in gold.
The anemic economic recovery led the Fed earlier in the week to announce it will purchase Treasurys through June in an effort to keep borrowing rates low and encourage companies to hire and consumers to spend.
Some market participants wonder if the Fed knew about the employment data before publication time and went ahead with its monetary easing program anyway, signalling the central bank thinks more slow economic growth is in the cards, said Tom Pawlicki, an analyst with MF Global. "There is some doubt about whether the strength in the payrolls is sustainable," Mr. Pawlicki said.
A weaker dollar would continue supporting gold by making it less expensive for foreign buyers. Though the buck rallied against rivals on Friday, it retreated from the day's highs on skepticism the data would provide anything beyond a short-term boost.
This all comes in an atmosphere of ultralow interest rates, one of the key reasons gold has been able to shoot to a string of records in recent months. They lower the costs of holding gold, which pays no interest, compared with other interest-bearing investments.
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