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London Gold Market Report

Fri, Nov 6 2009, 14:27 GMT
by Adrian Ash

BullionVault.com

Gold Gains 5% for the Week as Stocks Fall on Shock US Jobs Data

THE PRICE OF GOLD rose sharply from a fresh all-time Gold Fix of $1095 per ounce in London on Friday after new data put US unemployment at a 26-year high of 10.2% in October.

Average hourly wages improved – up 0.3% month-on-month – but the average working week held at 33.0 hours.

Canada also lost jobs in Oct. new figures showed, taking unemployment to 8.6%.

The UK reported weaker-than-expected wholesale price inflation. German factory orders came in below analyst forecasts for Sept.

"We believe the market will buy dips in gold to $1070," says one bullion bank in a note to clients today.

"Gold is still finding strong resistance approaching $1100," says Walter de Wet Standard Bank, noting that "the current strength of copper [also] appears due predominantly to investment demand."

But "Regardless of whether we break $1100 or not, a close above the previous high of $1070 makes the outlook for gold very positive," said another physical dealer in a note to clients.

World stock markets today turned lower and crude oil slipped back below $80 per barrel on the new US data, showing that 190,000 people became unemployed in October.

The United States has now shed 4.7 million jobs since the start of 2009.

Forex traders pushed the "safe haven" Japanese Yen higher as both the Euro and Sterling spiked half-a-cent down on the news, all approaching the weekend unchanged from last Friday against the Dollar.

The gold price in Dollars – briefly trading more than 5% above last week's finish – has now risen in ten of the last 13 weeks.

Against the Euro, gold ended Frankfurt dealing today 3.6% up for week at its best Friday close since the end of February.

The gold price in Euros peaked on Feb. 20th above €782 an ounce.

"We have been fairly strong accumulators of gold reserves over the past few months," said Sri Lankan central bank chief Ajith Nivard Cabraal to Reuters today in an interview from Chennai, India.

"We haven't stopped yet."

Running some $4.8 billion in foreign reserves, Cabraal refused to say what proportion is now held in gold.

But after the Reserve Bank of India bought 200 tonnes of gold from the IMF late last month, "We have no plans to buy gold," said Bank of Thailand governor Tarisa Watanagase, also to Reuters, today.

"We don't have a lot but we have enough."

"Gold is a secure asset but historical statistics show that, excluding its speculative side, it yields a low, long-term rate of returns from collateral fees."

"Its liquidity is poor, it pays no interest and the cost of storage is high," reckons Zhang Yuyan, head of the China's Institute of World Economics and Politics, a think tank – also claiming that all the gold ever mined would be worth no more than $1 trillion at today's record prices.

Estimated at 165,000 tonnes, the total stock of gold-above-ground is now worth some $5.8 trillion.

Research by BullionVault puts that sum at no more than 6% of global investable wealth, down from well over 10% throughout the 1980s and peaking nearing 30% at the points of extreme investor stress in the late 1970s and early '30s.

"The yield of 10-year US Treasury notes has surged by 34 basis points [0.34%] since the middle of October," notes South African money-manager Prieur du Plessis from Cape Town today, pointing to growing stresses on today's historically low interest rates.

The Securities Industry and Financial Markets Association (SIFMA) this week told a US congressional committee that "Federal Reserve purchases [of Treasury bonds] have taken an enormous amount of supply out of the market this past year...but next year, financial markets should expect even greater issuance with no support."

"There is a very good chance that 2010 will see a horrid global bond market," warns Bill King of the much-followed King Report.

Published on  Fri, Nov 6 2009, 14:28 GMT