Gold recovered from a sudden slump that saw prices drop by $60 in minutes, amid bets that the Federal Reserve may soon begin to taper its massive monetary stimulus. The spot price of the yellow metal fell over 4%, while silver dropped 7% as selling accelerated, following the release of U.S. employment figures that came in better than expected on Friday at the beginning of Asian trading. However, both metals quickly trimmed their losses, falling by less than 2% by midday in Singapore.
Gold had been losing ground due to investor fears that an improving economy and rising inflation would prompt the U.S. Federal Reserve to withdraw its unprecedented support. In July, American employers added more jobs than expected in almost a year, and the unemployment rate fell faster than anticipated. Meanwhile, expectations increased that stimulus would be curbed influenced by comments from Dallas Fed President Robert Kaplan, who stated that the central bank should begin to taper its asset purchases sooner rather than later, and in a gradual manner.
Commenting on the topic, John Feeney, a business development manager at Guardian Vaults, said, "The jobs data significantly exceeded expectations last week, leading to the selling of both gold and silver through to the close. We are witnessing the aftermath this morning, as late traders might be selling their positions since the opening, driven by panic. With liquidity low at this time of the week amid a large number of stop-loss orders that have been triggered, we've seen a volatile opening to the week."
The decline in prices shrank, with gold's ounce price dropping 1.4% to $1,738.26 after earlier touching its lowest levels since March, nearing its lowest point in over a year. In the futures market, over 3,000 contracts were traded in one minute—equivalent to more than $500 million in nominal value—indicating increased activity during a typically quiet trading period. Silver's spot price slipped 1.7% to $23.9064 an ounce.
Feeney said, "It's too early to tell, but this type of capitulation usually coincides with a significant drop in the market. Although we are seeing demand for physical metals this morning on the buy side."
In addition to the outlook for interest rates, gold's decline was also affected by the recent strengthening of the dollar and rising stocks.
In other markets:
- Palladium held steady, while platinum declined by 0.9%.
- The dollar changed little, while yields on U.S. 10-year Treasury bonds rose on Friday.
- Nickel and copper fell on the London Metal Exchange, as expectations of the Federal Reserve tapering its stimulus constrained demand.
