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Solid jobs data drives gold, oil prices higher

3 March 2010

A positive report on jobs Wednesday (March 3) showed a slight increase in the number of employed workers in the US. This was a strong enough sign to prompt some analysts to suggest unemployment and a bad jobs market could be bottoming out.

The solid economic news was enough to drive oil prices higher despite the latest Energy Information Administration report that shows relatively high levels of crude stockpiles in the US. With more employed people, the market expectation is that demand by businesses and consumers for oil-based products like fuel will rise.

Crude oil for April delivered reached as high as $81.38 Wednesday morning after the jobs report before falling back below $81. Oil had been a touch below $80 after the inventories report and before the release of the new data on jobs.

The dollar has been weak, especially against its European counterparts, thanks in large part to news that Greece and others in the European Union are taking some proactive measures to reduce budget deficits. The weak dollar has also contributed to gains in oil prices as well as surging gold prices.

The spot gold rate is $1,143.10, a roughly $25 gain from Monday’s New York Mercantile Exchange close of $1,118. Gold prices closed up around $16 Tuesday with a final price of $1,134.50.

Gold prices remain in a virtual decade long upward trend that has seen the precious commodity gain as much as $900 in ten years. However, in the near term, gold prices had dipped to $1,052.25 as recently as early February, but have since shot back up by about $100.

Going forward, if the jobs data is a sign that the economy is getting better and that the jobs market is improving, the dollar should strengthen based on a likely increase in interest yield from a tighter monetary policy.

Federal Reserve Chairman Ben Bernanke has come out recently to see the Central Bank is in no rush, but strong economic performance increases the potential of a sooner than later rise in the Fed funds rate.

An increased dollar is generally a naturally restrictor of increases in oil prices and gold prices. However, the focus right now for oil seems to be more on growth in demand as workers find jobs and are less budget-conscious. Interest in gold speculation seems to only be growing even with the potential for an economic recovery.

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