Gold News

Gold, Stocks & Commodities Drop on "Dollar Disorder" as US Jobless Rate Hits 1983 Levels

Gold Prices fell hard in London on Friday, dropping to a 3-day low of $989 from an AM Gold Fix of $998 an ounce after the United States reported its worst unemployment rate since 1983.

World stock markets sank for the fourth session running, while the US Dollar rose sharply – adding to last night's two-week high – on news of 263,000 job losses in September.

That took the national jobless rate to 9.8%.

"We remain bullish [on Gold] while it holds above $990 on a close," says Scotia Mocatta's technical note. "It has closed above here since September 2."

"Gold needs to hold onto these levels for a little longer yet before we can start to think of another move higher," says London's Virtual Metals consultancy in its latest Asian Metals Monthly for BNP Paribas and Fortis banks.

"At present we think the risks are mainly to the downside because of the long speculative positions [in Gold Futures] and potential for a greater Dollar bounce.

"But higher prices are likely before the year is out."

"Bias lies to the downside," agrees Walter de Wet at Standard Bank, "but we still favor buying these dips.

"Support remains strong even in the face of Dollar strength [and] it remains a Dollar game."

Speaking ahead of this weekend's G7 summit of leading nations in Istanbul, Turkey, "Excessive volatility and disorderly movement in exchange rates has adverse implications for economic and financial stability," said Eurozone central-bank chief Jean-Claude Trichet at a press conference in Sweden this morning.

Even after this week's rally, the US Dollar has dropped more than 15% of its value against the Euro in the last six months, reviving European fears of "painful" effects on the currency zone's exports.

"There is very strong sentiment that we have a shared interest in a strong and stable international financial system," Trichet added today after telling a meeting of finance ministers from the 27-nation European Union – the world's largest single economic zone – they should end their fiscal stimulus "at the latest in 2011.

"It is important in our view that it starts as soon as the recovery starts."

Speaking in Washington on Thursday, Federal Reserve chairman Ben Bernanke meantime contradicted previous Fed statements that a falling currency has only weak "pass-through" effects on domestic inflation.

Telling the House Financial Services Committee that Chinese and Russian calls for a new global "super currency" posed a threat to the US economy, "It would weaken the Dollar," Chairman Bernanke said.

"We would have to watch for any inflationary consequences of that...But I don't see [a new world currency] as a risk as long as we as a country take efforts to manage our risk and keep inflation low."

On the foreign exchanges today the British Pound fell back towards last week's five-month lows vs. the Dollar, trading at $1.5840 by lunchtime in London.

The Gold Price in Sterling held just shy of £630 an ounce, almost 7% higher from this time last month.

Eurozone investors looking to Buy Gold today saw the price slip 1% lower to €685 an ounce, even as the single currency dropped half-a-cent to the Dollar on the US unemployment news.

Germany's Dax index headed towards the weekly close down 1.4% from last Friday. Crude oil fell through $70 per barrel, while copper prices headed for their
fifth weekly loss in succession.

Government bond prices rose worldwide,
squashing 10-year German Bund yields to 3.14%.

"We are moving away from the 'green shoots' environment which was confirmation of a bottoming of [financial] prices to an environment where a confirmation of growth needs to be shown," reckons one Swiss-based oil trader speaking to Bloomberg today.

"There is no clear evidence of that yet."

Industrial gold demand in Germany rose slightly this week "independent of the price level," reports Wolfgang Wrzesniok-Rossbach in his latest Precious Metals Weekly for Heraeus, the Hanau-based refining group.

"However we have also been seeing higher volumes of scrap-related sales coming in, so that the effect on price has probably been insignificant."

Noting this week's news from the German Bundesbank that it will sell only 6.5 tonnes of Gold in the next 12 months – and that only for minting commemorative coins – "This announcement should have had a neutral effect," says Wrzesniok-Rossbach.

"But in an already over-bought market, dealers might just have used it as a reason to close-out some long-positions, and as a result the news ended up fuelling the price slide."

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Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum 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 he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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