Gold and Euro Surge on U.S. Job Losses
Commodities / Gold & Silver 2009 Mar 06, 2009 - 08:37 AM GMTBy: Adrian_Ash
THE PRICE OF GOLD in US Dollars moved in lock-step with the European single currency early Friday, breaking the pattern of the last seven weeks as the United States reported its worst jobless data since 1983.
US payrolls shrank by 651,000 in Feb., the Bureau for Labor Studies reported, pushing the unemployment rate to 8.1%.
Drifting back down to $1.2650 this morning, the Euro rose to a one-week high above $1.2735 on that data release.
The Gold Price also recovered an earlier dip, more than erasing this week's 4% drop at $942 an ounce, before slipping back to $935.
For Eurozone investors now Ready to Buy Gold , the price dipped to €735 an ounce.
"The fundamental position suggests that gold's role as a hedge against risk remains unsullied," says today's Precious Metals Weekly from Standard Bank.
"There is scope for further price gains, but the market needs time to settle and to regroup.
"March may therefore see some further dips before renewed price increases."
On the securitized finance markets today, equities tumbled in Asia – down 3.5% on Tokyo's Nikkei – after Wall Street stocks slumped to a fresh 12-year low overnight.
UK and European shares then flipped around break-even, gaining as the Euro and Gold Bullion rose in response to the worst US employment data since 1983.
Overall, however, "Investors continue to pull their funds from the equity markets," says today's Gold Investment note from London dealers Mitsui.
"As a result of this poor performance, it comes as no surprise to see bonds and gold benefit."
Looking to 2009's record government bond issuance, "America alone will borrow $1.75 trillion in fiscal 2009," notes today's Economist. "Rich European countries may need up to $1 trillion to cover their budget deficits and bank bail-outs."
Yet government bond prices continued to rise early Friday, with UK gilts adding to their sharpest one-day gains in 17 years after the Bank of England vowed to start buying government bonds with freshly-minted "quantitative easing".
Pumping £75 billion ($107bn) into sovereign and corporate bonds over the next 3 months, the Bank of England's latest reflationary gambit could fund two-thirds of 2009's entire public deficit if targeted to buying UK gilts alone.
Printing money to fund public spending is known as "monetizing" the government debt.
This morning 10-year gilts yields sank to a new record low of 3.08% as prices jumped further, down by almost one per cent since this time in Feb.
The UK press today calls the Bank of England decision "the last roll of the dice...a monetary experiment...[and a] license to print money."
Across the Atlantic yesterday, the New York Federal Reserve said it's bought $59 billion of US mortgage-backed securities in the last week, extending its overall position in the private-mortgage market by a net $30bn.
Thursday also saw the New York Fed lend an extra $5.5bn to commercial banks through its Term Lending Securities Facility,
Cash reserves held by the Federal Reserve system on behalf of commercial banks have retreated by one-fifth from Jan.'s record $878bn.
The cash cushion remains 100 times greater from this time last year, however, after the Federal Reserve created new reserves at an unprecedented rate in a bid to stem a systemic banking failure after Lehman Bros. was allowed to fail in Sept. '08
New data released yesterday meantime said a record 32 million American citizens received food stamps last week, up by 700,000 in one month and forecast to cost five times more in the year-to-end Sept. from the previous 12 months.
By Adrian Ash
BullionVault.com
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City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2009
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