Author: Paul Ploumis
09 Mar 2015 Last updated at 05:13:35 GMT
(Kitco News) - Gold prices started Friday’s North American trading session in negative territory and continued to fall deeper in the red as the day progressed.

By the afternoon prices had hit a session low of $1,162.90 an ounce and settled only marginally higher at $1,164.30, down 2.6% for the day. The gold ended the week at its lowest point since Dec. 1, shedding 4% since Monday.

Comex May Silver futures also saw a dramatic selloff Friday, hitting a low of $15.745 an ounce and settling the session at $15.807 an ounce, down more than 2% on the day. Since Monday, silver has lost 76.8 cents or 4.86%.

Analysts noted that prices were propelled through sell stop orders throughout the day, reacting to the much stronger-than-expected February nonfarm payrolls report. According to the U.S. Labor Department, 295,000 jobs were created last month with the unemployment rate fell to 5.5%.

"The jobs report definitely lit a fire under those who are expecting higher interest rates,” said James Steel, commodity analyst at HSBC. “The U.S. dollar has strengthened, particularly against the euro and that is negative for gold.”

The question now on everyone’s mind is just how low gold prices will go next week, in what is a quiet week for U.S. economic data. Most analysts expect that markets will spend most of next week preparing for the Federal Reserve monetary policy meeting on March 18.

Chris Vecchio, currency strategist at DailyFX, agreed that the U.S. dollar is dominating the marketplace, pushing gold prices lower, to which he added he doesn’t expect that to change much next week.

"The market is definitely bringing forward expectations of a June rate cut,” he said. “Gold’s fall today shows that there is faith in the interest rate underpinning the dollar right now. Gold is a really good investment when you see yield erosion or you see a lack of faith in sovereigns, and that certainly isn’t the case right now in the U.S.”

With the European Central Bank launching is expanded quantitative easing program on Monday, and markets expecting the Fed to be hawkish March 18, Vecchio said there is growing divergence among global interest rates, which is propelling the U.S. dollar higher.

The magnitude of Friday’s sell off in the gold market has surprised some analysts. George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures, said that he was expecting to see some weakness in the marketplace after the jobs number but was looking for the $1,170 level to hold.

With that level clearly broken, Gero said prices could fall back down to $1,133, creating a technical double bottom, from the November lows.

"I don’t think we are going to get there just yet, but it’s not something you should rule out,” he said.

Gero added that there is now a major “in-the-money” put position in the marketplace and that could keep prices lower until the options expiration closer to the end of the month, when options are rolled into futures contracts..

Analysts are also waiting to see if lower prices will attract more physical buyers and maybe some bargain-hunting investors.

Jeffrey Nichols, managing director of American Precious Metals Advisors and senior economic advisor to Rosland Capital, said that he will be watching the market early next week to see if there is any strong physical buying entering the gold market.

"If there is no physical demand then we could test the November lows,” he said. “The market could be vulnerable next week.”

Gero said that the market could see a small technical bounce next week as some bargain hunters enter the marketplace but any gains will be limited in the near-term.

"I don’t think we will see anything significant because there will be nothing to materially change the current marketplace,” he said.

Steel added Friday’s drop should “encourage price sensitive emerging market demand,” providing some support for the yellow metal.

Although most of the market focus will revolve around the U.S. dollar and interest expectations, the two economic reports that will garner investors’ attention will be February retail sales and producer inflation data; both will be released later in the week.

Courtesy: Kitco News