Spot Gold Jumps to $1400 on Weak US Data, Bull Market "Depends On" Inflation, Low Rates & Deficits

Spot Gold jumped within 5 cents of $1400 per ounce in wholesale dealing on Friday in London, holding onto an earlier drop vs. the Euro as the single currency rose sharply on news of weaker than expected US jobs growth in November.

Global equities had moved sideways – and major-economy government bonds fell – but broad commodity markets rose, with US crude oil contracts pushing to fresh two-year highs above $88 per barrel.

Silver Investing bars recovered an earlier drop beneath $28.70 per ounce to trade more than 7.2% up on the week.

"Strong demand for silver in China is evident in the $1.00 (and higher) premium silver is trading at in Shanghai," Standard Bank says today, also forecasting a possible 70% rise in China's Gold Investment demand for 2010 – whether "private and/or state".

"For us, the gold market exhibits clear signs of being an asset bubble," says the latest Commodities Weekly from French bank and London bullion dealer Natixis, noting that 10-year forward prices for gold contracts "are now approaching the highs achieved in the 1979-80 period" at $2000 per ounce.

"Gold Prices have become detached from the cost of producing gold" by mining, says Natixis, and "Investment in new output is resulting in an increase in mine supply" of some 5% year-on-year.

"From the perspective of Chinese investors, [Gold Investment] is theoretically irrational," Natixis goes on, because rising price-inflation should suggest a fall – not impending rise – in the Yuan vs. the Dollar.

Continued gold buying only makes sense for US investors "as long as QE can keep long-term interest rates low" the bank's analysts say, while "from the perspective of European investors, [gold] is a safe-haven only as long as default risks exceed fiscal [austerity-budget] retrenchment."

Dropping to a 3-session low beneath €33,750 per kilo this morning, the Spot Gold price in Euros still neared the weekend 1.7% higher from last Friday's finish.

Frankfurt's Dax index of German stocks cut its week-on-week gains to 1.5%.

So-called "peripheral" Eurozone bond yields meantime fell further vs. benchmark German Bunds, extending the easing of comparative borrowing costs for Ireland, Portugal and other "non-core" governments which coincided on Thursday with the European Central Bank's latest policy statement.

"As [ECB chief] Trichet started to speak," says an un-named source to the FT's Alpha blog today, "his troops stepped into the market to buy as many peripheral bonds as they could, particularly Portugal and Ireland."

German Bund prices ticked lower however on Friday morning, nudging their interest-rate yields upwards and thus helping to cut the comparative excess paid on other government bonds.

"What happens next [in the physical Gold Bullion market] depends to a large extent on developments in the sovereign debt situation," says Heraeus Refining's head of sales, Wolfgang Wrzesniok-Rossbach, in his latest Precious Metals Weekly.

"Ireland is not (yet) Greece...not as far as physical Gold Investment demand in Germany is concerned."

Investor demand for Gold Bars – "especially the larger bars" – has nevertheless risen "considerably", says Wrzesniok-Rossbach, without reaching the peak volumes seen during the Lehmans' crisis of late 2008 and the Greek deficit crisis of May 2010.

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