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Metals and Mining

Gold Prices Rise on Jobs Miss; Silver at 31-Year High

Alix Steel

03/30/11 - 02:25 PM EDT

NEW YORK ( TheStreet ) -- Gold prices rose Wednesday after a reading on the number of jobs companies added in March came in shy of expectations.

Gold for June delivery added $7.40 to $1,424.90 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded in a wider range today to a high of $1,431.70 and to a low of $1,413.10. The spot gold price was rising $5, according to Kitco's gold index.

Silver prices rose 52 cents to $37.51 an ounce, a 31-year high.

Vote: How high will silver prices go in 2011?


The ADP employment report wasn't interpreted as a significant miss. The private sector added 201,000 jobs in March, in line with what analysts are expecting from Friday's jobs number. But the snag came in that February's number was revised lower from 217,000 to 208,000.

"Gold buyers returned after some disappointment in the job sector that may keep interest rates down," says George Gero, senior vice president at RBC Capital Markets. The tone in the gold market was that the Federal Reserve could curb or abandon its $600 billion bond buying program, dubbed QE2, in light of better economic data, especially if the jobs landscape improved. If the jobs picture stays murky, as today's data indicates, then the trend of cheap money should continue.

Also supporting gold's rally is the end of the first quarter on Thursday, which can trigger strong buying or selling from portfolio managers as they want to show they own gold or book profits from it.

"I think you are going to find some rebalancing," says Mihir Dange of Arbitrage. " But the majority of the rebalancing you'll find at the end of the second quarter and at the end of the year." Dange's range is $1,400-$1,450 for gold. "We have to get above $1,450 in order to renew more bull interest."

Vote: Where will gold prices finish in 2011?


"Put a feeler on both," advises Scott Redler, chief strategic officer for T3Live.com. According to Standard & Poor's, since 1975 the gold price has risen 0.9% in the first quarter but 4.3% in the second. Gold prices are relatively flat for the year.

Oliver Pursche, co-portfolio manager of the GMG Defensive Beta Fund, has turned skeptical on silver. "Silver is now trading at its narrowest spread to gold prices in 27 years, and a three-decade high. In our view, the recent run up has increased the downside risk for Silver ... significantly."

Gold's safe haven thesis made a modest comeback as investors worried about continuing conflict in Libya and further downgrades of Greece and Portugal's debt.

"Nothing particularly new has happened," says Will Rhind, head of US operations for ETF Securities, "but there is increased tension throughout the world and that is causing people to look at gold as a safe haven object."

ETF Securities' gold and silver exchange traded funds, the smallest of the physically backed ETFs, ETFS Physical Gold (SGOL) and ETFS Physical Silver (SIVR) hold 899,620 and 18.3 million ounces, respectively.

There were also reports that gold demand in China was skyrocketing. Mineweb reported that China's English Language TV station said gold demand is going 'through the roof.' The country consumed 579.5 tons, or 18.5 million ounces, in 2010, according to the World Gold Council, and there have been rumors that China's central bank has been buying.

Nigel Moffatt, head of Treasury at Gold Corp, owner of the Perth Mint, says there is enormous demand coming from China currently. "China is ... the world's number one producer ... 340 tons of gold a year but you don't see any of that coming out of China but you see a lot of gold going into China."

"It's my belief that at this point and time what you are finding is that the Chinese central bank is probably picking up the bulk of Chinese gold that is being produced and that the imported gold is ... going into individual or commercial demand." The Perth Mint sells 20% of its production into China, unchanged from 2010.

China is unlikely to publicize if it is buying a lot of gold for fear of boosting the gold price. Over six years, the People's Bank of China stealthily increased their holdings to 1,054 tons and only announced it when they were done buying for the short term.

Gold mining stocks, a risky but profitable way to buy gold, were rising. Kinross Gold (KGC) was adding 2.61% to $15.74 while Goldcorp (GG) was up 2% to $49.53.

Other gold stocks, Agnico-Eagle (AEM) and Eldorado Gold (EGO) were trading at $65.19 and $16, respectively.


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-- Written by Alix Steel in New York.

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