Gold Recovers On Weak US Payroll News As Greece Agrees to Blackmail Bailout

By: Ben_Traynor

THE WHOLESALE market price of gold bullion leaped $10 per ounce to $1539 Friday lunchtime in London – recovering the last of this week's 1.1% fall – before sliding back as the US Dollar fell on surprisingly weak US jobs data.

The US economy added 54,000 jobs in May, according to the non-farm payroll report from the US Bureau of Labor Statistics, against analysts' consensus forecast of 190,000. 

Silver prices also bounced but remained 6% down on the week, at around $35.50 per ounce.

Global stock markets meantime were heading into the weekend lower as US Treasury bonds rose and oil prices fell.

"Beware of good news...the gloom might be overdone," said one London bullion dealer ahead of the non-farm payroll announcement, warning that a higher-than-expected rise could catch some traders out.

"The trade of most pain tomorrow is a [non-farm payrolls] number that's stronger than expected," agreed John Brady, senior vice president at MF Global Securities.

"Traders are taking chips off the table. They're paid to manage risk, and they're very likely to do that by taking chips off the table, especially at the beginning of the month," added Brady.

"The dip overnight was well bought into," a gold bullion trader in Singapore told Reuters on Friday, referring to Thursday's 1% gold price drop in less than an hour.

The Euro price of gold bullion meantime hit a two-week low on Friday, at €33,864 per kilogram (€1053 per ounce), after news that Greece had concluded talks in Vienna with its three non-market creditors – the EU, the International Monetary Fund and the European Central Bank.

ECB president Jean-Claude Trichet this week mooted the idea of a pan-European body to oversee national budgets.

"Would it be too audacious to imagine a European Union that not only has a unified market, a common currency and a common central bank, but also a common finance ministry?" asked Trichet, emphasizing the need to strike "a balance between national sovereignty on the one hand and the interdependence of member-state actions on the other, particularly in exceptional situations."

Greek prime minister George Papandreou meantime has agreed in principle to an additional €6.4 billion worth of austerity measures this year – along with another €22 billion up to 2015 and privatization worth €50 billion.

The additional fiscal tightening is a condition of additional bailout funds – which Greek newspaper Kathimerini reported on Friday will total €85 billion (the rumored figure on Tuesday was €60 billion).

"If we do not fight to overthrow these policies [our children's] working future will be hell...we have a sacred duty to our children and ourselves to cancel plans to turn workers into modern slaves," said a statement issued by Greek leftist group PAME, which blockaded the Greek finance ministry on Friday.

Greek unions have called for a general strike on June 15 to protest against privatization measures.

"We are not selling and we are not for sale," said a statement from GSEE, the main private sector union, adding that the Greek government had given in to creditor "blackmail".

"In the last few weeks we have returned to a situation in which the price of gold is once again being driven by European issues," said a note on Friday from French investment and bullion bank Natixis. 

Natixis notes that the cost of insuring against the debt default of weaker Eurozone countries has hit a record high.

"Throughout the month of April, developing countries remained active buyers of gold," Natixis adds, citing significant central bank purchase by Russia and Mexico.

Over in the US, ratings agency Moody's warned the federal government Thursday that "if there is no progress on increasing the statutory debt limit in coming weeks, [Moody's] expects to place the US government's rating under review for possible downgrade," citing the "very small but rising risk of a short-lived default." 

"If the debt limit is raised and default avoided, the Aaa rating will be maintained."

The US government is expected to reach the $14.3 trillion federal borrowing limit in early August. 

By Ben Traynor
BullionVault.com

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Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

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