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Non-Farm Payrolls Sends Gold Higher and Dollar Lower as U.S. Job Losses Continue

Commodities / Gold and Silver 2010 Jan 08, 2010 - 08:03 AM GMT

By: Adrian_Ash


Best Financial Markets Analysis ArticleTHE WHOLESALE PRICE of gold bullion jumped after falling sharply in Asian trade on Friday, hitting $1130 an ounce after the United States reported much-worse-than-expected job losses for December.

Falling by 85,000 against forecasts of a possible rise, non-farm payrolls shrank for the 23rd month running, taking the total number of jobs lost since Jan. 2008 to 6.4 million.

One in four jobless Americans has now been without work for more than 6 months, the Labor Dept. said.

"There [was] a little profit-taking ahead of the payroll report," said Mario Innecco at MF Global in London to Bloomberg this morning, but "The gold bull run is not yet over."

"Most traders in Asia [had] shifted into wait-and-see mode," said one Hong Kong dealer, adding that "a couple of players" sold gold to search out and trigger other traders' stop-losses on the electronic Globex platform.

"At current levels we are neutral the metal with view that we have entered a period of consolidation range trading," said a technical note late Thursday from wholesale market-maker Scotia Mocatta.

The Dollar fell hard on the jobs data after earlier ticking higher on the forex market. Government bonds had previously fallen in Asian and European trade, as had commodities, pushing the yield on US Treasury debt up towards new 7-month highs.

"The Bank of England is likely to prepare markets for policy reversal in its February Inflation Report and follow through with a rate increase in the spring," reckons Henderson New Star economist Simon Ward.

Ernst & Young's ITEM Club expects UK rates to stay on hold at 0.5% into 2011, however, as does accountancy firm Grant Thornton and Royal Bank of Scotland economist Ross Walker.

Over in the United States, "It is important for institutions to have robust processes for measuring and, where necessary, mitigating their exposure to potential increases in interest rates," warned the Federal Financial Institutions Examination Council on Thursday, a group of agencies including the Federal Reserve and Federal Deposit Insurance Corp.

Record-low US interest rates of less than 0.25% has helped boost profits at America's largest banks, Bloomberg News notes today.

After accounting for consumer prices, the Fed Funds Rate now lags inflation by almost 1.6% annually. Low-to-negative real rates of interest remain the common denominator between gold's record gains of the 1970s and its four-fold rise from 2001-2010.

Rising 3.1% for the week against the Dollar, the gold price stood 3.0% higher vs. the Euro and 3.9% higher against Sterling by Friday's New York opening, trading at €789 and £705 per ounce respectively.

Eurozone unemployment last month rose to 10.0% across the 16-nation union, new data showed today, the highest level since Aug. 1998.

Swiss unemployment also rose, hitting 4.4%, while wholesale prices in the United Kingdom leapt ahead of analyst forecasts.

Input prices for UK producers rose 6.9% from 12 months before, the fastest rate of inflation in almost a year.

At the factory gate, output prices rose to their highest-ever levels, unwinding 2009's near-3% drop and repeating the 1990s' ten-year rise of 22%.

"With gold prices higher by over 30% compared to last year, the fall in Indian imports is not surprising," says director of air-cargo company GSEC Samir Mankad.

"High prices have resulted in customer resistance and lower sales volumes. Festival and marriage-related demand will be there, but volumes would continue to be driven by prices."

GSEC tells DNA India that the volume of gold bullion imported through its Ahmedabad air-freight facilities fell 23% in 2009 from 2008, down by almost one-third from the peak of 2007.

Formerly the world's No.1 private gold buyers, Indian consumers were overtaken in 2009 by Chinese households, who bought perhaps one-ounce in every eight sold worldwide last year.

On the supply side, meantime, Zijin Mining – the largest listed gold miner in China, now the world's No.1 producer nation – this week reported a 15% rise in net profits, "mainly attributable to the increase of production volume and the sales price of gold," a spokesman said.

A consortium of Chinese interests, including the country's 7th largest bank, CITIC, today moved to acquire 70% of London-listed Oxus Gold, currently trading 80% below its all-time peak at 9 pence per share.

Newcrest Mining received approval to develop its Cadia East project in New South Wales, potentially the largest underground mine in Australia, the world's No.2 producer nation after most likely overtaking the United States in 2009.

An article published in today's Journal of Science meantime saw a group of environmental scientists call on the US authorities to block all mountain-top mining permits, citing "irreversible environmental impacts from this form of mining which also exposes local residents to a higher risk of serious health problems."

By Adrian Ash

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
Formerly 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 2010

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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