Nonfarm payrolls for Apr fell 20k and while the labor market is still contracting, this figure was significantly better than the 60k to 78k the market was expecting. Stocks and the dollar rallied and bonds sold-off on the slightly less dismal employment outlook. Better than expected March factory orders were another bright spot for the US economy.

Despite the initially negative reaction, gold is now slightly higher on the day. The still negative trend in payrolls may be supporting the yellow metal, but more likely it is the latest news from the Fed.

The Fed announced this morning that they are significantly expanding their liquidity facilities. The biweekly TAF auctions will grow from $50 mln every other week to $75 mln, beginning with the 05-May auction.

They also increased the reciprocal currency agreements with the SNB and the ECB, which will substantially increase the supply of dollars in Europe. The revised arrangements will now provide as much as $50 bln in dollar swaps to the ECB and up to $12 bln to the SNB. The BoE apparently opted out of the latest arrangements, saying they have plenty of dollars.

The Fed also expanded the types of collateral that can be pledged at TSLF auctions to include AAA/Aaa asset-backed securities, which would likely include securities backed by credit cards and auto loans.

It was a bold move when the Fed initially agreed to accept commercial and residential mortgage-backed securities in an environment of declining real estate values and record defaults. That decision was reflective of the severity of the crisis. This expansion of acceptable collateral is a strong indication that the worst of the financial crisis may in fact not be over, as has been espoused recently.

Certainly most people in dire economic times are going to make their mortgage payment before they make a car or credit card payment. Is the Fed attempting to head-off an expansion of the liquidity crisis? Could things actually be about to get worse? The latest move by the Fed must have been inspired by some rather dire expectations.

Kudos to the Fed for timing the announcement of this massive injection of liquidity so that the market's focus was on the better than expected payrolls data. All this new liquidity must ultimately have a negative impact on the dollar, which in turn should be supportive to gold.

While we continue to see redemptions in GLD, there was a preliminary signal from SLV that the tide may be turning.

Gold Market Movers:

US factory orders for Mar surged 1.4%, well above market expectations, versus a revised -0.9% in Feb.

US nonfarm payrolls for Apr fell 20k, much better than the market was expecting. Unemployment rate drops back to 5.0%.

Fed expands liquidity facilities. Increases biweekly TAF by 50% to $75 bln starting 05-May.

Eurozone manufacturing PMI for Apr revised down to 50.7 from 50.8.

UK Halifax house prices tumbled 1.3% in Apr, more than twice market expectations.

German retail sales for Mar unexpectedly fell 0.1%.

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Gold Fields stops operations