Gold Extends Sell-off as Tapering Speculation Rises

Gold futures fell to the lowest levels since October 16 in Monday's trading, after a stronger than expected non farm payrolls report from the Bureau of Labor Statistics (BLS) showed robust growth in the number of new jobs created in the United States.

The BLS reported on Friday that employers added 204,000 workers to its payrolls in October, far surpassing analyst expectations of 125K.

The US unemployment rate ticked higher to 7.3 percent in October, in line with analyst expectations. and rising from 7.2 percent in the prior month. However, the rise in the unemployment rate was affected in part by the impact of temporary federal furloughs during the US government shutdown.

GDP provided a further boost to optimism over the US economic outlook as the US economy expanded at a faster pace than estimated last quarter. Last Thursday's GDP report from the Commerce Department showed that the US economy grew at 2.8 percent at an annualized pace in Q3, rising from Q2's 2.5 percent rate of growth and exceeding analyst expectations of 2.0 percent.

The positive economic data spurred speculation that the Federal Reserve could soon start scaling back its $85 billion in monthly bond purchases which would reduce the appeal of gold as a hedge against inflation.

Despite the news that Federal Reserve economists recently suggested that the unemployment rate should fall to six percent or lower before reducing quantitative easing, the positive data has fueled speculation over tapering as soon as December.

Gold reached record highs of $1,920 an ounce in 2011 as central banks collectively engaged in dovish fiscal policy. Since then, gold has suffered large losses in 2013, having already fallen by almost 25 percent this year amid expectations from earlier in the year that the Fed would cut back their stimulus. While the US central bank had been expected to reduce its $85 billion in monthly bond purchases in September, chairman Bernanke refrained at that time, citing concerns over the health of the US economy.

The yellow metal is now trading well below both the 200 and 50 period simple moving averages. Support lies beneath at the prior low of 1,253.

COMEX Gold Daily Chart