Spot Gold Prices capped their stellar week late in London on Friday, peaking above $706 per ounce – a new 16-month high – as Western stock markets sank on news that US employment shrank last month for the first time in four years.
The Dow Industrials on Wall Street lost more than 200 points inside two hours. Comex gold futures for delivery in Dec. '07 rose $8.30 for the day to near $713 per ounce.
"This is a very real bull market in gold's favor," says Dennis Gartman, editor of the eponymous and widely respected investment letter. "Weakness is to be bought rather than strength sold."
The Nasdaq index, which had previously rebounded this week as investors sought an apparent "safe haven" in tech stocks, fell faster than the Dow, losing 2% in short order.
This week's surge in the Gold Market has delivered the strongest five-session gains since Nov. last year. Ending Friday in London with the best weekly close since gold hit a 25-year peak in May '06, the rally has taken the Dollar Gold Price more than 12% above its starting level of Jan. '07.
"Today's poor jobs report is adding fuel to the fire," says Jim Pogoda, a former precious-metals trader for Mitsubishi. "The report gives the Fed more of a reason to begin to ease the Federal Funds rate, which would soften the Dollar and strengthen gold further."
Today's non-farm payrolls report showed a net loss of 4,000 jobs in Aug. from the month before. Analysts had been expecting an 108,000 increase.
But it wasn't only US investors who saw the gold price move sharply higher on Friday. The Price of Gold in Euros shot 1% higher from an early low to break €512 per ounce for the first time since the end of Feb.
For British investors wanting to Buy Gold Today, the price touched £348 per ounce, gaining more than 4.1% from last Friday's close.
In the currency market, the Dollar dropped a cent against both Sterling and the European single currency, sinking to a month's low of $1.3800 per Euro. And yet US Treasury bonds rose on the poor jobs data, pushing yields lower in anticipation of cut in Dollar interest rates, offering new US bond buyers a lower rate of return on the less valuable currency.
Two-year yields sank by 19 points to 3.91%. Ten-year Treasury yields dropped 10 points to 4.41%. The US Fed's current "target" rate for Dollar interest rates is 5.25%.
"This single number – the jobs data – gives them cover to cut," reckons William O'Donnell, head of US bond strategy at UBS in Stamford, Connecticut.
Shrinking payrolls, he told Bloomberg, "were last a feature in the marketplace when we were at the generation lows in yields in mid-2003."
The Federal Reserve famously slashed its Dollar interest rates all the way down to an "emergency" one per cent that year. And now that there is a genuine emergency in subprime housing – threatening a default-led recession – what next for US interest rates and the Dollar?