Saturday, November 7, 2009

Gold taps record as U.S. joblessness hits 10%

NEW YORK (MarketWatch) -- Gold futures finished at a record Friday, after earlier tapping $1,100 an ounce, as news that the U.S. unemployment rate topped 10.2% in October lifted expectations the Federal Reserve will keep interest rates near zero well into next year, pressuring the dollar.

Gold for November delivery rose $6.40, or 0.6%, to end at $1,095.10 an ounce, the highest closing level for a front-month contract.

The more-actively traded December contract gained $6.40, or 0.6%, to $1,095.70. December gold earlier hit a record intraday high of $1,101.90 on the Comex division of the New York Mercantile Exchange.

Industrial metals, such as copper, however, moved lower. Copper fell fractionally with the December contract ending at $2.94 a pound.

"With unemployment at 10%, the implications for Fed policy is that they have their hands tied and cannot defend the dollar," said Joe Foster, manager of the Van Eck International Investors Gold Fund.

"We're going to see lots of new records going forward," he said. "By year end, it wouldn't surprise me to [see gold] test $1,200 and then $1,300 by early next year before we see some consolidation."

The U.S. economy shed 190,000 jobs last month, lifting the unemployment rate above the 10% mark for the first time in 26 years, the Labor Department said. The report also revised statistics for September and August.

Economists surveyed by MarketWatch, were looking for a decline in nonfarm payrolls of 150,000 and for the unemployment rate to rise to 9.9%. See full story.

The dollar index /quotes/comstock/11j!i:dxy0 (DXY 75.77, +0.08, +0.10%) , which measures the U.S. unit against a basket of six major currencies, slumped to 75.648, down 0.2% on the day.

Bets that the Federal Reserve will eventually lift interest rates from near zero fell slightly after the report. Fed fund futures indicated traders pared bets the Fed would raise its target rate by mid-2010 to 0.31%, compared to a 0.33% rate before the data.

On Wednesday, the Fed left its target rate in a range of between 0% and 0.25%, and repeated its commitment to keep rates low for the foreseeable future, citing slack in the economy and little reason to worry about inflation.

"With today's [economic] numbers, we see that interest rates are still contracting and that quantitative easing is still in place for the foreseeable future," said Stephen Flood, executive director at GoldCore. "The move to $1,100 signals a continued global move to safe harbor investments."

The exceptionally low rates have fueled a dollar carry trade, whereby investors borrow dollars to invest in riskier assets, such as stocks and commodities, including gold.

On Wall Street, the Dow Jones Industrials Average /quotes/comstock/10w!i:dji/delayed (INDU 10,023, +17.46, +0.17%) rebounded from early weakness, to gain 10 points in afternoon trade. The S&P 500 Index /quotes/comstock/21z!i1:in\x (SPX 1,069, +2.67, +0.25%) was up 0.2%.

The SPDR Gold Trust /quotes/comstock/13*!gld/quotes/nls/gld (GLD 107.43, +0.45, +0.42%) , the biggest gold exchange-traded fund, bucked the trend, rising 0.4%.

Also providing support for gold are expectations of more purchase by central banks. On Monday, the Reserve Bank of India surprised markets by purchasing 200 tons of gold from the International Monetary Fund, nearly half of the 403.3 tons the IMF plans to sell over the coming years.

"India was a surprise," Foster said. "We knew that China and Russia were buyers but to have India jump into this is very positive for gold. Many central bankers are worried about the dollar, so they're looking at alternatives."

In other metals action, silver for December delivery fell 3 cents, or 0.2%, to $17.38 an ounce, while January platinum slumped $14.70, or 1%, to $1,348.20 an ounce.

December palladium fell $1.15, or 0.3%, to $330.70 an ounce.

Nick Godt is MarketWatch's markets editor, based in New York.

No comments:

Post a Comment