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Gold Jumps to 3.1% Weekly Gain on US Job Losses, "Bull Run Not Over"

Gold 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.

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

"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.

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%.

"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.

"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 says 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."

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Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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