Gold Up on Dour Data

A 'pessimists' paradise' of economic news is good for the yellow metal.
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Updated from 11:28 a.m. EST

Gold streaked higher again Thursday with traders betting that more gloomy economic data will undermine the greenback.

New data from the Labor Department show that last week's initial claims for unemployment insurance rose 18,000 to 327,000, compared with analysts' forecasts of 310,000.

Data for the prior period were revised upward to 309,000 from 308,000.

Also published by the same agency were data showing that productivity growth came to a standstill in the third quarter compared with consensus forecasts for growth of 1.1%. In addition, the prior period's figures were revised down to 1.2% from 1.6%. Unit labor costs, a key measure of inflation, rose 3.8%, above expectations of a 3.4% increase.

Without sustained growth in productivity, increases in labor costs tend to get passed on to consumers in the form of higher prices for goods and services.

Those reports were accompanied by generally

weaker-than-expected October sales data from retailers such as

Wal-Mart

(WMT) - Get Report

and

Target

(TGT) - Get Report

.

"After two weeks of nearly universally below-consensus economic reports, we have entered a pessimists' paradise," writes Michael Darda, chief economist at MKM Partners in Greenwich, Conn. "In other words, the recession trade is back on."

And that looks like great news for gold, as investors in the yellow metal tend to thrive on strife and turmoil.

Bullion market watchers seem to be anticipating a dollar slide, although reaction in the spot market was mixed, with the dollar buying 117.14 yen, up from 117.04 yen late Wednesday.

The greenback was down against the euro, which was recently trading at $1.278, down from $1.2755 previously.

The varied reaction in the foreign-exchange markets didn't hold the gold bulls back, with December-dated contracts closing up $8.50 at $627.80 an ounce on the Comex division of the Nymex.

The bullion exchange-traded funds,

iShares Comex Gold Trust

(IAU) - Get Report

and

streetTracks Gold Shares

(GLD) - Get Report

, followed suit, both up about 1.2% in recent trading.

But prices could already be running into the next level of chart resistance, according to technical analysts.

"I see chart congestion around the mid-$620s up to about $626-28, then at $642-44 thereafter," says James Moore, an analyst at

TheBullionDesk.com

in London.

On the downside, Moore sees support from scale-down buying starting to kick in around $618.

On the physical metal side of the business, the harsh volatility of the summer may be dampening demand from retail investors. The U.S. Mint reports that sales of its gold bullion coins fell to 30,500 ounces of during October, down from 43,000 ounces in September. Last October, the Mint sold 51,500 ounces of bullion in coin form.

Elsewhere, news from the

Associated Press

that Iran was test-firing dozens of long-range missiles provided further support, as gold tends to be bought as a safe haven in times of war.

Among the miners, shares of

Eldorado Gold

(EGO) - Get Report

and

Yamana Gold

(AUY) - Get Report

were gaining 5.1% and 4.5% respectively, pushed higher by the rallying gold price.

Newmont Mining

(NEM) - Get Report

was recently up 0.85% after a losing start. The company announced late Wednesday that Pierre Lassonde will step down as the firm's president at year-end. No successor has yet been named.

Barrick Gold

(ABX)

announced third-quarter earnings of 46 cents a share vs. 21 cents in the same period of 2005. Excluding a charge of 5 cents a share for special items, mainly due to revised cost estimates for planned mined closures, the company beat analyst expectations of 49 cents a shares.

Investors clearly liked the news and the stock was gaining 1.1% recently.

In base metals, December copper contracts rebounded from Wednesday's drop, closing up 5.05 cents at $3.2915 a pound.