The market is looking for the headline nonfarm payrolls number to come in around -55k. A slightly smaller loss than the 63k jobs lost in Feb. Wednesday's slightly positive ADP employment survey was more than offset by Thursday's surge in initial claims during the last week of March. There is risk for a negative surprise, which would sway talk between slow-down and recession in favor of the latter.

The Fed's policy decision at the 30-Apr FOMC meeting is likely to hinge on this morning's employment data as well. The market has fully priced in another 25bp rate cut. Odds for a larger half point cut had narrowed in recent weeks, but doubled from 12% to 24% in the wake of the surprise jump in initial claims. If payrolls come in worse than market expectations, look for the odds of a 50bp cut to move toward 50-50.

An increase in the likelihood that the Fed will drop the target for Fed funds below 2% at the end of the month would probably pull the plug on the recent short-term dollar strength. The dollar index has already ticked back below the pivotal 72.00 level in overseas trading today. A resumption of the dominant bear trend in the dollar would bode well for renewed strength in gold as well as oil.

The recent series of higher lows and lower highs on the DX and euro chart suggests that they are consolidating within a symmetrical triangle pattern. A symmetrical triangle is a continuation pattern, meaning that a breakout of the chart pattern tends to come in the direction of the dominant trend. For the DX, the trend is down. For the euro the trend is up (dollar negative).

A similar chart pattern is evident on the oil chart as well, where the underlying trend is still decisively bullish. Oil has spent the vast majority of the past month above $100 per barrel. While there have been periodic dips associated with concerns about the US demand in a weakening economy, global demand as a whole remains robust.

Oil edged higher within the range earlier in the week on a bigger than expected drop in gasoline stocks. This, along with low refinery utilization overshadowed an increase of 7.3 mln barrels in crude oil stocks.

Oil may dip initially on any negative surprises with payrolls, amid heightened concerns about a US recession. However, oil still remains attractive as a hedge against a falling dollar. Gold and oil are closely correlated, so an bullish signal in oil would be favorable for the yellow metal as well.

Additionally, funds are still likely to be looking to get back into commodity positions after squaring up ahead of the quarter-end. If the funds opt to reallocate toward commodities less dependent on a strong US economy, the precious metals, particularly gold and platinum should be big beneficiaries.

Gold Market Movers:

US nonfarm payrolls for Mar fell 80k, a far bigger drop than the market was expecting. Feb was revised downward to -76k. Strong recessionary indication.

Unemployment rate hits 5.1%

Canada employment for Mar +14.6k

Swiss CPI for Mar 2.6% y/y. A 15-year high.

Anglogold's hedge time bomb

Questions for the Fed

Stock index futures suggest a higher open on Wall Street

Opinions expressed in commentary on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. Centennial Precious Metals, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD - Centennial Precious Metals does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.

Pete Grant is the Senior Metals Analyst and an Account Executive with USAGOLD - Centennial Precious Metals. He has spent the majority of his career as a global markets analyst. He began trading IMM currency futures at the Chicago Mercantile Exchange in the mid-1980's. In 1988 Mr. Grant joined MMS International as a foreign exchange market analyst. MMS was acquired by Standard & Poor's a short time later. Pete spent twelve years with S&P - MMS, where he became the Senior Managing FX Strategist. As a manager of the award-winning Currency Market Insight product, he was responsible for the daily real-time forecasting of the world's major and emerging currency pairs, along with the precious metals, to a global institutional audience. Pete was consistently recognized for providing invaluable services to his clients in the areas of custom trading strategies and risk assessment. The financial press frequently reported his personal market insights, risk evaluations and forecasts. Prior to joining USAGOLD, Mr. Grant served as VP of Operations and Chief Metals Trader for a Denver based investment management firm.

-- Posted Friday, 4 April 2008 | Digg This Article