Gold Prices bounced off their lows for the session as London closed on Wednesday after a US employment report showed that "private payroll growth is not yet falling off a cliff," as one analyst put it.
The US Dollar continued its 3-day bounce on the US jobs data, rallying to a new one-week high against the Euro and hitting its best levels versus the Japanese Yen since late August.
Treasury bonds also slipped on the report from ADP Employer Services. It showed private US companies adding 58,000 jobs in Sept. Economists had been expecting a below-average reading.
Dashing hopes of lower US interest rates in the very near future, the jobs report outweighed ISM data showing a drop in non-manufacturing business activity last month, and left Wall Street stocks little changed by lunchtime in New York.
London's FTSE100 index ended the day 0.6% higher on rumors of a possible bid for Northern Rock, the over-geared mortgage bank that suffered a "run" by anxious cash-savers after it accepted emergency help from the Bank of England.
In Tokyo, the Nikkei had earlier ended the day at a 9-week high.
"We definitely lost a bit of momentum [in the Gold Price] as we saw profit-taking that just capped the buying we'd seen previously," noted Frederic Panizzutti at MKS Finance to Reuters earlier.
"But that doesn't mean in our view that sentiment has taken a different direction. After all the progress made on the upside, the Gold Market had to consolidate somewhere. We would not exclude further downside correction, but short-medium term we remain very positive."
In the broader commodity markets, natural gas prices slipped lower on mild weather forecasts in the United States. Corn prices also fell as traders unwound their speculative bets on news of a record US crop.
Copper prices meantime rose to a 5-month high as a strike hit Peruvian mines owned by Southern Copper Corp., the world's fifth-largest producer. Crude oil also rose after US data showed a drop in stockpiles of 41,000 barrels from last week.
The market had been expecting US inventories to increase by 550,000 barrels according to a Bloomberg survey.
Elsewhere on the data front, US mortgage applications fell for the second week running despite the Federal Reserve's aggressive 0.5% cut in US interest rates, according to numbers released by the Mortgage Bankers Association.
A new report from UBS, the Swiss investment bank, also warned that 17% of the home-loans now backing subprime mortgage bonds are "too large" to be refinanced by Fannie Mae or Freddie Mac, the US government agencies designed to help struggling home-owners, under their current terms and conditions.
Many so-called "jumbo loans" taken out to finance home purchases at the top of the US housing bubble exceed the $417,000 limit. They also exceed the insurance limit set by the Federal Housing Administration – the agency that President Bush said would come to the aid of struggling mortgage debtors back in August.
"We expect further headline interest rate cuts by the Federal Reserve," says the latest monthly report from Fortis Metals. "Certainly the White House will be anxious to avert an outright economic recession in the run-up to the Presidential election in November 2008.
"Further rate cuts will soften the Dollar yet further, and should spell even higher Gold Prices."
The Fortis report also notes that total holdings in exchange-traded gold funds – the "ETF" innovations that allow investors to "track" the Gold Price but charge fees of 0.4% per year without giving you actual gold ownership – now exceed the position held in Comex and Tocom gold futures by 59 tonnes.
That means private individuals and investment funds increasingly favor tracking the Gold Price on cash alone, rather than speculating with the leverage – and the risks of highly-geared losses – that gold futures allow.
In the 12 months ending last Friday, the major exchange-traded gold funds grew their gold bullion holdings by 47%. Physical gold owned outright by customers of BullionVault, in contrast, grew by 83% over the same period.
Between July and October alone, the gold stored by BullionVault increased by 21% in volume terms. The service now looks after more than $102 million worth of gold and cash on behalf of private individuals in 78 countries worldwide. Its store of privately-owned gold bullion exceeds most of the world's central banks, including the Bank of Canada.