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Why the jobs report has ruined gold: Strategist

Lawrence Lewitinn
Talking Numbers
Why the jobs report has ruined gold: Strategist

Good economic news may be bad news for gold. Here's why.

The latest jobs numbers came in better-than-expected on Friday and that could mean bad news for gold.

Despite the federal government's shutdown for the first 17 days of October, non-farm payrolls were up 204,000. That's a 79,000 more than economists were expecting. This comes one day after the Commerce Department released third-quarter GDP data showing 2.8% growth.

Good economic data is the sort of thing some gold investors have been dreading. Since the start of the financial crisis half a decade ago, the Federal Reserve Bank has been pumping dollars into the economy by buying US Treasury and mortgage bonds from financial institutions. As of December of last year, it's been doing so at a rate of $85 billion each month.

(Read more: Gold slides nearly 2%, blindsided by sunny US jobs data)

The added money in the system with "quantitative easing" ("QE") has been cited by some investors as a reason to hold gold. More money means more inflation, the reasoning goes. And, if the consumer goods prices won't go up, the money will have to go somewhere like stocks, for example. Thus, while the Consumer Price Index was up 1.2% for the twelve months ending in September, some gold investors point to the S&P 500 index rising 17.4% during that same time period as proof of asset inflation. Gold is often considered a safe haven investment during high inflationary periods.

Back in May, Fed Chairman Ben Bernanke hinted that the Fed would taper the QE program provided economic data improved. The Fed was expected to do so in December but ultimately decided against a taper, citing poor economic data. Much of the market anticipated a tapering in later winter/early spring of 2014. But, with the new economic data now out, sentiment is beginning to shift towards a taper expectation in the next two or three months.

Yet, despite continued QE and a bullish stock market, gold is down nearly 24% in 2013. CNBC contributor Gina Sanchez, founder of Chantico Global, believes it won't get any better, especially if tapering is on the horizon.

(Read: Stellar jobs report is downer for housing)

"As [the Fed] starts to pull back QE, that's going to be negative for gold because gold thrives on the idea of debasement of currency," says Sanchez. "Well, that's going to go away. I think the long-term outlook for gold is definitely negative. But, I'd say even the short-term is negative."

"This thing has been in a down-trend since it reached its peak at the beginning of the year as economic data started to improve and as people started to believe the Fed would taper," says Andrew Busch, editor and publisher of The Busch Update. The only upside was when "the Fed did a big head-fake in September that got [gold] to rally a little bit."

What's next for gold given today's jobs data? Watch the video above to see analysis by Sanchez on the fundamentals and Busch on the technicals for gold.

More from Talking Numbers:

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Gartman: Why I’d pick stocks over gold in 2014


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