Gold jumps as US dollar slips on central banks move
(Proactive Investors UK) - The price of gold rose sharply this week with the yellow metal adding over US$60 per ounce due to a decline in the US dollar against other major currencies that followed Wednesday’s announcement of coordinated action to support the banking system by six top central banks.
As gold is seen as an alternative asset to the US dollar, a weaker American currency usually props up demand for the bullion.
The Federal Reserve and six other banks have decided to reduce the interest rate on US dollar liquidity swaps to boost liquidity in the banking sector by making it cheaper for banks to buy the greenback.
The move hit the US dollar, while triggering a rally in equity and commodity markets that saw the Dow Jones index jump 490 points on Wednesday, posting its biggest daily gain since march 2009 and topping the 12,000 level.
The US dollar faced more pressure from China’s decision to cut reserve requirements for banks by 50 basis points, the first such move since 2008. Investors are hoping that the Chinese government will refrain from further monetary policy tightening measures, which included three increases in interest rates this year alone.
Finally, demand for safe haven assets, including the US dollar, was reduced by Friday’s non-farm payrolls report from the US Department of Labor, which came in ahead of expectations.
The official figures showed that the economy in the US created 120,000 jobs last month. Importantly, the rate of unemployment declined from nine percent in October to 8.6 percent, suggesting that the job market recovery in the US is picking up speed.
Earlier in the week, paurolls processor ADP said the private sector added 206,000 jobs in November.
Gold ended the week at US$1,745/oz, up US$64 from a week ago. Silver surged from US$30.98/oz to US$32.64/oz and platinum rose from 1,524/oz to US$1,543/oz.
FTSE 100 gold miner Randgold Resources (LON:RRS) fell from 6,775 pence to 6,700 pence over the past five days of trading, while most other precious metals focused miners were on the rise this week.
Silver producer Fresnillo (LON:FRES) jumped from 1,583 pence to 1,753/oz and platinum miner Lonmin (LON:LMI) rose from 971 pence to 1,063 pence.
In the FTSE 250, gold miner African Barrick Gold (LON:ABG) climbed from 491 pence to 515 pence.