Futures Now

Here's what was behind gold’s wacky jobs reaction

After the Bureau of Labor Statistics announced that 203,000 jobs were added in November, and the unemployment rate fell to 7 percent, gold didn't seem to know what to make of the news. After initially diving to $1,210, the metal quickly added $20 in about 10 minutes, and consequently hit a morning high of $1,245 at 9:03 a.m EST before cooling off.

Traders said that rather than representing a disagreement on what the better-than-expected jobs number will ultimately mean for gold, the action can mostly be pegged on a lack of liquidity.

(Read more: Jobs Friday: US nonfarm payrolls at 203,000; unemployment rate at 7%)

"To try to make logic out of the moves 45 minutes to an hour after the number—I think it's just market positioning," said Jim Iuorio of TJM Institutional Services. "Right around the number, people all pull their bids and offers, so it can all get shoved around quite easily. You've got to let it settle down first to figure out what's really going on."

The move in gold is made all the more mystifying by the fact that gold appeared to react to the jobs report nearly 10 seconds early. But in fact, that could have been a response to the lack of liquidity as well.

"Gold moved sharply a full 7 seconds before the official employment news release," reported Eric Hunsader of Nanex.

"We've seen this in the EIA report for oil and natural gas, and what we've found is that people are paying for really good estimates with high accuracy of what the numbers are going to be. If you've got this service, you'd want to trade as close as possible to the release time—but before it, of course," Hunsader told CNBC.com

Yet because people don't want to be caught on the wrong side of a trade, "as you get closer and closer to that time, people pull out. It's like a cat-and-mouse game. The book just starts emptying out. And this time, liquidity dried out a lot more than usual," he said.

Gold hits low after jobs, then recovers

This could explain why gold initially dropped. After all, since a strong jobs report would seem to increase the chance of the Federal Reserve tapering its quantitative easing program, if one knew an above-consensus payrolls number was coming, one would be liable to sell gold.

(Read more: Upbeat payrolls may undermine gold)

"This is a number that constitutes more taper talk, and it should weigh heavy on gold," Iuorio said.

Brian Stutland of the Stutland Volatility Group similarly remarked that he was "surprised gold is hanging in there as much as it is."

But to Mihir Dange, a gold options trader with Grafite Capital, the level at which gold turned around is no coincidence.

"Over the last few days, when we get down to $1,210 or $1,215, you've seen a lot of volatility come into the market." Dange said. "The low is right around $1,210 three days in a row now. Whenever we've gotten down there, a tremendous amount of buying comes in."

Friday morning's choppy trading in gold certainly didn't surprise John Woods of JJ Woods & Associates.

"It's the end of the year, there's a lack of liquidity, and guys just scout on news that comes into the market—it's sort of just reacting to any news story," Woods said. "You're just seeing guys saying, 'let's make a few bucks here, get out and have a good weekend.' "

—By CNBC's Alex Rosenberg. Follow him on Twitter: @CNBCAlex.

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