Gold edges into positive territory after U.S. data

Gold edges higher after a report showed that the US economy added fewer jobs than expected during April. This fueled speculation that the Federal Reserve may turn to further monetary stimulus in order to boost the economy. A new round of stimulus would keep interest rates low and undermine the US dollar.

By Jan Harvey
Fri May 4, 2012 9:36am EDT
Reuters

LONDON, May 4 (Reuters) - Gold prices edged back into positive territory on Friday after a report showed the U.S. economy added fewer jobs than expected last month, fuelling speculation the Federal Reserve may turn to further monetary easing to boost growth.

The data, which is seen as a key gauge of the economic recovery, showed only 115,000 more jobs were created last month, against expectations for 170,000. The dollar, a key driver of gold prices, hit session lows after the numbers.

Spot gold was up 0.1 percent at $1,637.71 an ounce at 1314 GMT, off an earlier low of $1,626.50. U.S. gold futures for June delivery were up $3.10 an ounce at $1,637.90.

"The numbers were less than consensus, but beat some more bearish expectations," Societe Generale analyst Robin Bhar said.

"The $64 million question is what it means for quantitative easing, which of course is key for the gold market," he said. "The euro/dollar hasn't shifted a huge amount."

A fresh round of quantitative easing would undermine the dollar and keep real interest rates at rock-bottom levels. Speculation that such measures could be on the cards has been a major driver of higher gold prices this year.

Spot prices have fallen nearly 2 percent so far this week, their biggest weekly loss since mid-March, after a run of better-than-expected economic data dampened talk of more easing.

The euro steadied against the dollar, meanwhile, depressed by weak euro zone services data and ahead of Sunday's French and Greek elections, the results of which may stir doubts over their commitment to fiscal austerity.

In France, socialist front-runner Francois Hollande has promised to shift the debate in Europe towards promoting growth if he is elected. Greek voters angry with economic hardship are expected to punish traditional parties in an election that could plunge the country into new political chaos.

"An acceleration of the focus on Europe could potentially be very disruptive for markets and derail investor sentiment yet again," UBS said in a note on Friday.

"With gold still undecided as to whether it would rather sympathise with risk or safe haven assets, the reaction function of XAU/USD remains unclear at this point," it added. "But given the pressure renewed European tensions would have on the single currency, (gold in euro terms) might be poised to benefit."

Euro-priced gold was up 0.1 percent at 1,244.91 euros an ounce, but is on track to fall 0.7 percent this week.

SUPPORT HOLDS

From a technical perspective, a breach of support for spot prices around $1,628 an ounce could trigger a move back to $1,612-1,615 and from there towards $1,600, analysts who use past price moves to predict the future direction of trade said.

Among other precious metals, silver recovered after falling to a 3-1/2 month low at $29.75 but was still on track to fall 4.5 percent on the week, having slipped below $30 an ounce for the first time since mid-January.

It was later up 0.3 percent at $30.15. If it closes the week in the red, it will have fallen for eight out of 10 weeks.

The gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, rose to a 3-1/2 month high of 54.6 on Friday.

"(The silver) market will remain in fundamental surplus through to 2015," RBS said in a report. "Already we had net disposals in 2011 of 806 tonnes, and a further 265 tonnes of outflows since early March this year."

"We think the silver price has peaked and forecast silver to average $33 an ounce in 2012, down 6 percent year on year, and to continue declining through to a 2015 average of $21," it added. "We expect to see price volatility make silver a classic trading top and tailing market for the quick and nimble."

Spot platinum was down 0.1 percent at $1,525.25 an ounce, while spot palladium was up 0.3 percent at $657.98 an ounce. (Reporting by Jan Harvey; Editing by Alison Birrane)

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