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Gold Jumps vs. All Currencies on Job-Loss Economic Recovery Data

Commodities / Gold & Silver 2009 Sep 02, 2009 - 09:24 AM GMT

By: Adrian_Ash


THE PRICE OF GOLD jumped 1% to a four-week high above $966 at the start of US trade on Wednesday, after the United States reported a sharp rise in productivity due to a 7% drop in the number of hours worked.

European stock markets added to Tuesday's sharp falls, with London's FTSE100 index hitting a nine-session low beneath 4,800.

Crude oil dropped below $68 per barrel, while government bond prices ticked higher, pushing 10-year US Treasury yields down to 3.36%.

"The market is still illiquid, which explains the large price swings," says a note from MKS Finance, a division of the Swiss refining group. "However activity is gathering once again, and with further data Gold ought to eventually leave its summer range."

US factory costs rose less quickly than expected between April and end-June, the BLS data showed today, while labor costs dropped sharply, down at a near-record pace of 5.6% year-on-year.

Like the jump in US productivity, those cost-savings came because "Output fell 5.5% while [working] hours fell 7.2%," the Bureau of Labor Statistics said, "yielding an increase in productivity."

Private-sector payroll company ADP meantime said the US shed a further 298,000 jobs in August, taking 2009 losses to date above four million.

"In light of weakness elsewhere in the commodities complex," says Manqoba Madinane at Standard Bank, "gold has continued to trade in a fairly tight range, benefiting from its safe haven status.

"[But] the US Mint reported a 4.7% month-on-month slowdown in demand for Gold Coins in August. This appears to be due to the impact of higher prices, [and] also suggests that the fear factor that had gripped some investors may be on the wane."

Yesterday the Bombay Bullion Association blamed high Gold Price for an 85% drop in Indian gold imports during August, down to 14 tonnes from 98 the year before.

Formerly the world No.1 consumer market, India was overtaken by China throughout the first half of this year.

Gold imports to world No.6 Turkey fell 74% last month from August '08, the Istanbul Gold Exchange said.

Leaving the US Dollar little changed at $1.42 per Euro, Wednesday's economic data saw the Gold Price in Euros leap to its best level since early June, up 3% from last week's low to break €678 an ounce.

For UK investors now Ready to Buy  Gold the price also leapt to its best level in 3 months at £595 an ounce.

"Our industrial costumers in Europe are saying it's looking brighter, but in our actual deliveries it's difficult to see any real signs of improvement," said Lennart Evrell, CEO of Swedish base-metals mining group to Reuters at a conference this morning.

The Eurozone monetary union today confirmed its GDP shrank by 4.7% year-on-year.

The cost of insuring European bank debt from default meantime leapt at the fastest pace since May, Bloomberg reports, with analysts citing fears of tighter capital controls after Thursday's G20 meeting of political leaders in London.

US deposit insurer the FDIC is now watching 416 "problem" banks. Eighty-four US banks have already failed this year, reducing the FDIC's insurance fund by 75% from this time last year to $10 billion.

"Higher capital requirements impact the profitability of financial institutions," says Tim Brunne at UniCredit SpA in Munich. "It's causing some uncertainty in the market."

Elsewhere on the data front today, Australia's economic growth came in weaker than first reported for the second quarter, up 0.6% from the April-July period last year.

UK construction activity was weaker than analysts forecast in August, still signalling contraction but better from July.

Factory orders in the United States rose 1.3% in July, the Census Bureau reported, lagging Wall Street forecasts of 1.5% growth.

By Adrian Ash

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2009

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

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