Gold falls below cost of production

Slumps 1.5% Friday on positive US non-farm, unemployment data

Gold fell over 1.5 per cent to slip below its cost of production on Friday on indications of a revival in the global economy, after the US Federal Reserve reported positive non-farm payroll data.

Gold for December delivery on the Comex division of the New York Mercantile Exchange fell below $1,200 an oz on selling pressure from stockists. Aggressive hedging by miners also prompted sellers to offload the precious metal. Gold was trading at $1,194.5 an oz on the Comex in early Friday trades, a $16 decline from the previous close.

The steep fall in the price of gold, however, brought cheer to Indian consumers as jewellery buyers rushed to buy for Dusseh ra. Also, buyers booked for future delivery ahead of the wedding season. The steep fall in gold prices have raised questions of miners' viability as the cost of production is estimated at $1,200 an oz. Experts believe miners may cut production to arrest the free fall in gold prices.

“The gold market is in over-supply and hence production cuts, if any, would arrest falling prices. Miners have already started locking inventory at current prices. This indicates further fall is possible," said Gnanasekar Thiagarajan, director, Commtrendz.

The US Fed reported on Friday non-farm payroll employment increased by 248,000 in September, higher than the 216,000 forecast. The unemployment rate declined by 0.2 percentage points to 5.9 per cent, the US Bureau of Labor Statistics reported.

The change in non-farm payroll employment for July was revised from 212,000 to 243,000, and for August from 142,000 to 180,000. With these revisions, employment gains in July and August combined were 69,000 more than previously reported. The positive sentiment in labour market could prompt the US Fed to raise interest rates earlier than expected.

The dollar strengthened against global currencies after the report was published, climbing to a new high of 1.2534 against the euro, 1.06 per cent stronger for the session.

"The fall in gold prices will boost buyers' sentiment this festive season, as they await a correction from sustained high prices. Consumers rushed to book jewellery, raising retailers' Dussehra sales by over 100 per cent,” said Kumar Jain of Umedmal Tilokchand Zaveri, a Zaveri Bazaar-based bullion dealer and jewellery retailer. 

As for equities and other commodities, the Dow Jones Industrial Average futures climbed 96 points to 16,820 shortly after the release and futures on the S&P 500 climbed 13 points to 1,951.

For near term, Thiagarajan expects gold to find support at $1,175 an oz and later at $1,050 an oz by March 2015.