Why the price of gold is down to a year low? Falling US unemployment boosts investor confidence

Gold's appeal has been tarnished by stronger-than-expected employment data for the US. 

 

The commodity, which is viewed by investors as a safe haven at times of economic instability, fell in value by 0.7 per cent to $1,183 per ounce during Asian trading this morning – its lowest price since June last year.

 

On Friday, the US Labor Department released data showing that 248,000 jobs were created in September, exceeding economists' expectations and reducing the unemployment rate by 5.9 per cent.

 

This caused the US dollar to strengthen against other currencies and raised investor concerns about how soon the Federal Reserve could raise interest rates. Fed officials have already said a stronger labour market would pave the way for tightening monetary policy once the central bank's stimulus efforts are wound down.

 

The central bank isn't expected to take action until next year, but investors are trying to get ahead of the Fed and the latest unemployment statistics are an indication that interest rates could be raised soon.

 

The news has encouraged investors to take their money out of gold and bet on the US economy instead, since gold can provide no interest and higher interest rates would therefore be detrimental to those with money locked up in the commodity. 

 

“Jobs data like this strengthens the camp that says the Fed will be raising rates sooner rather than later, and that’s very bearish for gold,” said Bob Haberkorn, a senior commodities broker with RJO Futures in Chicago.