Gold Rebounds as U.S. Jobs Data Signals Fed May Keep Interest Rates Low

Gold futures rose this week on speculation that the Federal Reserve will continue to keep interest rates low in an attempt to stimulate the economy. This then leads to a slumping dollar and precious metals becoming a safe haven against that slumping dollar.

By Pham-Duy Nguyen
Jun 3, 2011 11:39 AM MT
BLOOMBERG

Gold futures rose the most in a week on speculation that the Federal Reserve will keep interest rates low to stimulate the U.S. economy, boosting the appeal of the precious metal as an alternative to the slumping dollar.

The greenback headed for the third straight weekly decline against a basket of major currencies as this week’s economic reports showed the U.S. recovery is waning. Employers in May added the fewest number of workers in eight months, and unemployment climbed to 9.1 percent. Before the jobs figures were released today, gold dropped as much as 0.5 percent.

“We’ve seen the data stream take a turn for the worst,” said Matt Zeman, a strategist at Kingsview Financial in Chicago. “Traders are not convinced there won’t be further measures taken to keep borrowing costs low. In an uncertain economic environment, gold is a good choice.”

Gold futures for August delivery rose $9.70, or 0.6 percent, to settle at $1,542.40 an ounce at 1:38 p.m. on the Comex in New York, the biggest gain since May 27. This week, the price climbed 0.3 percent, the fourth straight gain. The metal has advanced 27 percent in the past year, reaching a record $1,557.40 on May 2.

The Federal Reserve has kept its benchmark interest rate at zero percent to 0.25 percent since December 2008 and pledged to buy $600 billion in Treasuries through the end of June to help revive the economy.

Yesterday, gold slumped as much as 1.5 percent. Dennis Gartman, an economist and the editor of the Suffolk, Virginia- based Gartman Letter, reduced his holdings of the metal by half a day after recommending buying more and selling euros.

‘Violent Selling’

“We fear the possibility that gold might swiftly fall to $1,480 or so over the course of the next few days or weeks,” Gartman said. “The violent selling in gold this week is sufficient to cause us to reduce our position in gold by half this morning.”

Silver futures for July delivery fell 1.1 cents to $36.191 an ounce, down 4.4 percent this week. The price has tumbled 27 percent since reaching a 31-year high of $49.845 on April 25. The commodity has doubled in the past 12 months.

Palladium futures for September delivery rose $15, or 1.9 percent, to $785.40 an ounce on the New York Mercantile Exchange. The metal gained 3.1 percent this week. The price has advanced 74 percent in the past 12 months.

Platinum futures for July delivery rose $5.90, or 0.3 percent, to $1,823.70 an ounce, up 1.3 percent this week. The price has climbed 18 percent in the past year.

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net.

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