Gold Settles Above $1,542 on Dollar Drop, Weak Jobs Report

Gold held onto modest gains Friday to settle above $1,542, after jumping to a two-day high when the dollar tumbled after a soft monthly labor report showed the U.S. economy created far fewer jobs than expected in May.

Spot gold slipped to about $1,541.44 a troy ounce after rising to a two-day peak of $1,546.39, still up from $1,532.55 an ounce late in New York on Thursday.

U.S. gold futures for August delivery settled at $1,542.40 Friday after hitting a record high of $1,575.79 on May 2.

Gold priced in sterling hit a record high of 946.79 pounds ($1,548) an ounce, as a weaker dollar across a basket of currencies triggered a rush for the precious metal.

The euro’s gains accelerated against the U.S. dollar, taking out a resistance level that could result in further gains for the euro zone single currency. Investors bet against the greenback after a bleak U.S. payrolls report added to evidence of a marked slowdown in the economic recovery.

U.S. employers hired far fewer workers than expected in May and the unemployment rate rose to 9.1 percent. Nonfarm payrolls rose 54,000 last month, the weakest reading since September, and the jobless rate went up as high energy prices and the effects of Japan’s earthquake bogged down economic growth.

“This is gold-friendly data … (it) points to a slacking U.S. economy. In the worst case scenario, we could have a double-dip in the U.S. economy and possibly deflation, which would also help gold,” said Robin Bhar, an analyst at Credit Agricole.

“The weaker dollar is also helping gold. We should see gold moving to recent highs or even to new highs if we see more risk-averse news,” he added.
Later, the only piece of positive U.S. economic news came when a service sector reading showed an acceleration in growth in May, giving some hope jobs will improve in coming months.

The Institute for Supply Management said its services sector index rose to 54.6 last month from 52.8 in April, which pulled gold off its highs.

But, analysts said the second-tier report would do little to negate the raft of weak readings released all week, that opened the door for some kind of additional economic stimulus and put the risk-on trade back on the table.

“Essentially gold is benefiting from the ugly contest. The dollar is ugly, the euro is ugly and compared to them gold looks comparatively pretty,” said Ross Norman, chief executive at bullion brokers Sharps Pixley.

Investors use gold as a hedge against political and economic insecurity and inflationary pressure. It typically moves in the opposite direction to the dollar, which when it falls makes commodities cheaper for holders of other currencies.

Tackle Upside

Also lifting the euro, and, in turn, gold, was the imposition of a deeper austerity plan for Greece and its struggling economy, and promises to speed up a privatisation drive in return for a new international bailout so that it can avoid a debt default.

“There is still a lot of uncertainty over Greece’s potential bailout, and we shall see more reassuring comments from policymakers in the euro zone in the near future, though it is clear that debt restructuring remains only the very last resort for Athens,” VTB capital said in a note.

Spot silver [XAG= 36.73 0.52 (+1.44%) ] was last seen at $35.94, down from $36.17 late on Thursday, continuing its descent of the last three days. For the week, silver has lost 6.42 percent.

Investors have been dumping industrial metal silver on a spate of weak manufacturing news. They also fled the white metal after exchange operators in Shanghai and New York increased margins, the money required to trade silver futures.

Weak fundamentals reinforced the sell-off, which has seen silver fall from a $49.51 an ounce hit on April 27.

Platinum [PLCV1 1826.40 2.70 (+0.15%) ] was slightly higher at around $1,810.49, and palladium [PACV1 784.75 -0.65 (-0.08%) ] firmed to about $778.22. – Reuters

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