Gold Rallies on Jobs News

An unexpected surge in jobless claims gives gold a jolt.
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Updated from 11:55 a.m. EST

Gold prices surged again Thursday, as the dollar slid on news of an unexpectedly large jump in U.S. jobless claims and a sluggish reading on the factory sector.

Contracts for February delivery of bullion rose $11.10 to $652.90 an ounce on the Comex division of the Nymex. The exchange-traded funds that hold gold stocks also rallied, with

streetTracks Gold Shares

(GLD) - Get Report

and

iShares Comex Gold Trust

(IAU) - Get Report

both up about 1.9%.

The surge in gold comes as the dollar traded lower, following the spike in unemployment claims and an unexpectedly weak Chicago purchasing managers index report. The dollar was buying 115.8 yen, down from 116.41 yen. It was also sharply lower against the euro trading at $1.3243 vs. $1.3146 previously.

Gold prices tend to move in the opposite direction to changes in the value of the U.S. currency.

The selling in the dollar was prompted by the Labor Department saying that new claims for unemployment insurance jumped to 357,000 last week, compared to a revised figure of 323,000 for the prior week. Forecasters had been expecting a figure of 316,000. Separately, the Chicago PMI for November fell to 49.9, from 53.5 in October, which was well below consensus expectations of 54.5.

Both economic figures provided more evidence of a slowing economy.

Also boosting gold were renewed concerns that tensions may heighten in the Middle East. Investors tend to rally to precious metals like gold when they are concerned about geopolitical issues.

"The big concern is that the U.S. has lost its leverage against Tehran, and that Israel may have to act on its own if it wants to avoid a nuclear Iran," says Peter Grandich, editor of

The Grandich Letter

"That will only help fuel the gold price and that's why people are getting their positions now."

From a technical analysis viewpoint, a close above $650 would be "very positive," with the next level of resistance likely at about $668, says Nell Sloane, an analyst at NS Futures in Chicago. But she warns: "We're a little bit overbought, which means the market is a little bit vulnerable."

The rally in gold helped lift the Amex Gold Bugs Index 3.6%. Shares of

Yamana Gold

(AUY) - Get Report

and

Goldcorp

(GG)

led the pack, rising 6.4% each.

Also doing well were shares of

Newmont Mining

(NEM) - Get Report

and

Barrick Gold

(ABX)

, up 2.6% and 3.9% respectively.

In base metals, March-dated copper contracts gained 4.05 cents at $3.1955 a pound.

"Housing construction will be off a lot, but the commercial construction is still good and that should help copper a bit," says says Peter Morici, an economist at the University of Maryland, who sees a "benign" first half of 2007 for the industrial metals complex with continued robust demand from China, India, and Korea.

Shares of diversified miners

BHP

(BHP) - Get Report

and

Rio Tinto

(RTP)

moved up about 1% and 1.4%, respectively.