Gold Jumps in All Currencies on Weak US Data, Growing Bank Risk - 2 September 2009

The Gold Price jumped to a four-week high above $966 at the start of US trade on Wednesday, after the US Bureau of Labor Statistics reported a sharp rise in productivity, due entirely to a 7% drop in the number of hours worked during the second quarter.

European stock markets added to yesterday's sharp falls, with London's FTSE100 index hitting a nine-session low beneath 4,800.

Crude oil fell below $68 per barrel. Government bond prices ticked higher, pushing 10-year US Treasury yields down to 3.36%.

"The market is still illiquid, which explains the large price swings," says a note from MKS Finance, a division of the Swiss refining group. "However activity is gathering once again, and with further data gold ought to eventually leave its summer range."

US factory costs rose less quickly than expected between April and end-June, the BLS data showed today, while labor costs dropped sharply, down at a near-record pace of 5.6% year-on-year.

Like the jump in US productivity, those cost-savings came because "Output fell 5.5% while [working] hours fell 7.2%," the Bureau of Labor Statistics said, "yielding an increase in productivity."

Private-sector payroll company ADP meantime said the US shed a further 298,000 jobs in August, taking 2009 losses to date above four million.

"In light of weakness elsewhere in the commodities complex," says Manqoba Madinane at Standard Bank, "gold has continued to trade in a fairly tight range, benefiting from its safe haven status.

"[But] the US Mint reported a 4.7% month-on-month slowdown in demand for Gold Coins in August. This appears to be due to the impact of higher prices, [and] also suggests that the fear factor that had gripped some investors may be on the wane."

Yesterday the Bombay Bullion Association blamed high Gold Price for an 85% drop in Indian gold imports during August, down to 14 tonnes from 98 the year before.

Formerly the world No.1 consumer market, India was overtaken by China throughout the first half of this year.

Gold imports to world No.6 Turkey fell 74% last month from August '08, the Istanbul Gold Exchange said.

Leaving the US Dollar little changed at $1.42 per Euro, Wednesday's economic data saw the Gold Price in Euros leap to its best level since early June, up 3% from last week's low to break €678 an ounce.

For UK investors now Ready to Buy  Gold the price also leapt to its best level in 3 months at £595 an ounce.

"Our industrial costumers in Europe are saying it's looking brighter, but in our actual deliveries it's difficult to see any real signs of improvement," said Lennart Evrell, CEO of Swedish base-metals mining group to Reuters at a conference this morning.

The Eurozone monetary union today confirmed its GDP shrank by 4.7% year-on-year.

The cost of insuring European bank debt from default meantime leapt at the fastest pace since May, Bloomberg reports, with analysts citing fears of tighter capital controls after Thursday's G20 meeting of political leaders in London.

US deposit insurer the FDIC is now watching 416 "problem" banks. Eighty-four US banks have already failed this year, reducing the FDIC's insurance fund by 75% from this time last year to $10 billion.

"Higher capital requirements impact the profitability of financial institutions," says Tim Brunne at UniCredit SpA in Munich. "It's causing some uncertainty in the market."

Elsewhere on the data front today, Australia's economic growth came in weaker than first reported for the second quarter, up 0.6% from the April-July period last year.

UK construction activity was weaker than analysts forecast in August, still signalling contraction but better from July.

Factory orders in the United States rose 1.3% in July, the Census Bureau reported, lagging Wall Street forecasts of 1.5% growth.

Looking to Buy Gold today? Make it simple, secure and cost-effective at BullionVault...