Gold News

Gold Dumps, Stocks Surge with Dollar on US Job Loss Data

Gold fell through $1200 an ounce for the first time in 3 days lunchtime Friday in London, falling fast to $1190 and below on news that US unemployment rose by just 11,000 last month.

Wall Street analysts expected 111,000 job losses in November. The unemployment rate ticked down to 10.0%.

The US Dollar leapt on the news, and London's FTSE100 share index reversed an earlier 0.6% loss, rising fast alongside French and German stocks.

Government bonds fell hard, driving 10-year US Treasury yields up to 3.70%.

The Gold Price also extended its retreat against other major currencies, dropping 1.2% through €800 and losing 2.5% from Thursday's all-time high vs. the Pound.

The UK Treasury today leaked news that next week's pre-budget report will not apply "any dramatic fiscal tightening".

British investors looking to Buy Gold lunchtime Friday saw the price slip to a near 4-session low of £718 an ounce.

"We are bullish while [Gold] achieves fresh highs, but cautious of any quick reversal," said the latest technical analysis from Scotia Mocatta this morning, suggesting a trailing stop loss "below 1183 for short-term traders."

"We believe that gold will have to shift into the slow lane," says Wolfgang Wrzesniok-Rossbach at German refining group Heraeus in his latest Precious Metals Monthly.

"At some point or other, the price will undergo a significant correction. What event might trigger such a fall and at what level this process will start, however, remains to be seen. [But] the price targets, on the other hand, seem somewhat clear:

"$1080, $1050 and $1025 each represent powerful support levels on the charts."

"A rally like this one cannot continue forever," agrees Mitsui in its latest note, but "with the momentum the yellow metal has been carrying, it is risky business to stand in its way."

Nineteen out of 24 professional traders and analysts interviewed by Bloomberg today reckon that gold will rise next week, the newswire says.

Reuters in contrast says that "most" of the 33 professionals it surveyed this week see gold prices hitting a correction before year-end.

Over in the official sector meantime, "China has the scope to step up gold purchases but should take a long-term approach, avoiding the open market," said Zhang Bingnan, a senior member of the China Gold Association, to Reuters at the Shanghai Gold Conference on Thursday.

"If we adopt a too aggressive and rash manner, it is not practical," he said.

China is now the world's No.1 Gold Mining nation. The People's Bank is widely thought to have grown its gold reserves by buying domestic production direct.

Private Chinese gold buying will overtake Indian demand this year, GFMS consultancy chairman Phillip Klapwijk confirmed at the same conference today, forecasting consumer off-take of 432 tonnes vs. India's 422.

Gold is a safe haven because there is "no violation of contract," the China Gold Association's Zhang said to Reuters.

"Gold is the only non-credit product in the financial market."

Writing in a Communist Party newspaper, Li Wei – vice director of Beijing's Assets Supervision & Administration Commission – said Thursday that "intentionally complex and highly leveraged products were fraudulently peddled [to China] by international investment banks with evil intentions.

"To a certain extent some international investment banks were the chief criminals and the root of ruin for the Chinese enterprises who encountered this financial derivatives Waterloo," Li said of the post-Lehmans' slump, reporting a 9% loss on $18.3 billion of hedging and speculative contracts held by some 130 state-owned firms.

Swiss banking giant UBS and the Standard & Poor's rating agency yesterday announced a new "S&P 500 Gold Hedged Index", based on the total return of the S&P 500 stock market index but with an added position of long Gold Futures contracts.

"In a gold-hedged strategy," said Liz Taxin, S&P's director of strategy, "investors are seeking to eliminate the risk of US Dollar fluctuations and are therefore willing to sacrifice potential currency gains against gold."

Looking ahead to 2010 in the forex market, "Amongst the major currencies there's three specific risks next year," says Steven Barrow at Standard Bank in London today.

"One is that the Dollar falls far quicker than expected, another is that we see bailouts in the Eurozone, and another is that we see a hung parliament in the UK election."

Yesterday the US, European and UK central banks all signaled changes to their emergency aid to domestic financial houses.

The Bank of England said it may sell as well as buy corporate bonds – currently totaling £1.5 billion ($2.6bn) of its £185bn quantitative easing purchases – using the proceeds to support new non-government debt issues.

Holding its key lending rate at 1.0%, the European Central Bank said the final chunk of its 12-month loans to Eurozone banks will be charged not at that all-time record low, but at the average ECB lending rate of the coming year.

In Washington, Ben Bernanke told the Senate committee set to vote on his second five-year term as US Fed chairman that his central bank will withdraw liquidity at an "appropriate time and pace".

Analysts noted that he failed to repeat the Federal Reserve's recent statement that it would keep interest rates "exceptionally low for an extended period."

"The ECB's move just marks the beginning of an end and has been widely expected. The recent rally in gold was built on expectations that the ECB will move ahead of the Fed," reckons Market Strategy Institute Analyst Koichiro Kamei in Tokyo.

Germany's finance minister Wolfgang Schaeuble warned this week of a "second credit crunch" unless bank lending to small and medium-size businesses improves.

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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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