Gold Bounces as US Job Data Disappoints

From Adrian Ash

BullionVault

Hong Kong Gold Premiums Rise Further as Weaker Eurozone Debt Falls Again

DOLLAR PRICES for gold bullion bounced from a near 6-week low as New York trading began on Friday, rallying above $1360 an ounce as US employment data came in below analyst forecasts for Dec.

Non-farm payrolls added 103,000 jobs. The participation rate for the US labor force fell further below two-in-three.

World stock markets held onto slight losses on the news, but the Euro rallied after falling through both $1.30 and its 200-day moving average, as many technical analysts noted.

Weaker-economy Eurozone bonds led by Portugal and Spain fell once again, and the cost of insuring them against default jumped to new record highs.

“Precious metals are unable to break away from their Euro correlation,” said one London dealer Friday morning, as silver prices dropped another dollar from Thursday’s finish to trade almost 9% below Monday’s new 30-year high.

The gold price in Dollars bottomed almost 5% off its new record high of this time last month.

The gold price in Euros peaked overnight at €34,000 per kilo – less than 2% off its all-time high of last week.

“We think it’s Euro weakness, bought on by debt strains, rather than Dollar strength, caused by better data, that’s the key factor at play here,” says chief forex strategist Steve Barrow at Standard Bank.

The Economist magazine’s Free Exchange blog today notes that the 17-nation single currency was the worst-performer amongst major currencies in 2010, adding that “Portugal is rightly regarded as the next likely candidate for the IMF/Eurozone rescue fund [because] it’s access to market funding looks precarious.”

“It is clearly possible that further European crises might again push gold prices higher,” writes Patrick Artus’ research team at French bank (and London bullion dealer) Natixis. “[But] we would expect spot gold prices to decline as [global] interest rates rise.

However, even as “other central banks are leading the way in tightening monetary policy” Natixis’ 2011 commodity outlook continues, “the US Fed remains in ultra-expansionary monetary easing, in sharp contrast to recent global economic cycles.

“This is likely to lead to greater volatility in commodity prices, as counteracting pressures vie for supremacy.”

Crude oil contracts bounced early Friday from a 3-week low, but copper prices led another 1% in base metals.

“Nice wake up call for folk to see that commodities can go down as well as up,” notes metals analyst Nick Moore at RBS.

Short-term in gold, Thursday marked “the 4th consecutive down day” in Dollar gold prices, says Russell Browne at Scotia Mocatta, “something that has not happened in over 12 months.”

Looking ahead, however, “Bullish factors such as concerns over Eurozone debt levels, the US deficit and higher inflation expectations are likely to see gold peaking at much higher prices later this year,” reckons Credit Agricole CIB’s senior metals analyst Robin Bhar.

Meantime in Asia on Friday, Chinese and Indian traders were once again heavy buyers of gold and silver, according to dealers, with the Hong Kong premium to buy gold rising to $2 per ounce above the London benchmark.

“Supply is tight in the physical market,” Reuters quotes a local dealer.

Offers to sell gold in the wholesale Hong Kong market were priced up to $3 above London prices, another dealer says in a note.

Adrian Ash

BullionVault

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Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the mining-sector’s World Gold Council research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2011

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