Here’s what’s behind gold’s crazy post-jobs volatility

Gold had a hard time making up its mind about Friday’s jobs report.

In the 20 minutes before the number came out, gold futures first rose about $10, before promptly giving up those gains. At the second before the number was released at 8:30 a.m. EDT, gold was sitting at $1,356.5 per troy ounce.

On the initial news that the nonfarm payrolls number was more than 100,000 above economists’ expectation, gold did what one would probably expect, given the precious metal’s function as a bet on market fear and on more stimulative Federal Reserve policy: It gapped down on heavy volume, bottoming out at $1,336.3 in the minute after the release.

Yet once that level was hit, gold staged a major turnabout, rising as high as $1,371.8 at 9:15 EDT.

From there it changed its mind yet again, settling into a range between $1,352 and $1,359, with a volume-weighted average price of $1,355.7 between 9:45 and 11:30. In other words, after the metal traded in an almost 3 percent range over the course of an hour, the actual jobs number made no real difference in the price of gold.

For Phillip Streible, senior market strategist at RJO Futures, the gold volatility reflects a major tug of war underway in the market.

“Under normal circumstance we should have seen gold initially fall $20 and then grind lower throughout the rest of the trading session, but these are different times,” Streible wrote to CNBC on Friday. “Regardless of how strong the number is, the Fed will remain handcuffed to not raising rates for the rest of the year.”

In other words, even a positive jobs report does not appear to make the Fed substantially more likely to raise rates. Hikes in rates are the great fear of gold bulls, as they tend to strengthen the dollar and reduce the chances of inflation, both of which are bad news for the precious metal.

Indeed, it bears mentioning that gold’s drop and subsequent rise largely mirror an opposite move in the U.S. dollar index.

Also contributing to the outsized magnitude of gold’s volatility is the incredible 15 percent run the metal has made from its late May lows to its early July highs.

“That kind of move, combined with the blowout job numbers, clearly had an effect on the erratic trading that immediately followed,” wrote Frank Cappelleri, a trader and technical analyst at Instinet.

From this point on, Cappelleri warns that “if today’s strong NFP report is perceived to be real, then gold may underperform a big longer.”

Meanwhile, Streible says that “$1,350 is the bull/bear line” which will determine sentiment in the gold market. And with the precious metal trading just about at that price midday Friday, the next move could be anyone’s guess.