Gold Prices Climb Ahead of Jobs Report

As the first quarter is wrapping up, gold prices have risen ahead of the jobs report and as protection against the continuously falling dollar and debt crisis going on in other global economies.

By Alix Steel
03/31/11 - 12:25 PM EDT

NEW YORK (TheStreet ) -- Gold prices were higher Thursday as the first quarter wrapped up and investors bought gold as protection as the U.S dollar weakened.

Gold for June delivery was adding $13 to $1,437.90 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,441 and as low as $1,421.70 while the spot gold price was up $12, according to Kitco's gold index.

Silver prices were 15 cents higher at $37.66 after hitting another 31-year record close Wednesday of $37.51 an ounce.

Gold and silver were getting some help from a weaker U.S. dollar. The U.S. dollar index was lower by 0.27% to $75.91. The dollar was under pressure from a stronger euro as Ireland's central bank said its largest banks would need to raise € 24 billion, less than a Bloomberg analyst poll showed. Ireland is also struggling with high loan rates from its € 67.5 billion bailout from the EU/IMF stability fund as the country refuses to raise its corporate tax rate.

Portugal was also still in the spotlight after its 2010 budget deficit accounted for 8.6% of its GDP. The expectation was for 7.3% and its goal for 2011 is to reduce its deficit to 4.6% of GDP, which will be harder now following the resignation of the Prime Minister and uncertainty in the government. Portugal's long term borrowing rate rose to 8.244% on Wednesday.

Despite all the problems, the euro is finding support on the expectation that the European Central Bank will raise interest rates when it meets next Thursday after Eurozone inflation picked up to 2.6% in March, hotter than expected. In theory, a rate hike could hurt gold prices if the negative real interest rate environment is reversed.

That scenario, however, seems unlikely. The deposit rate at the ECB is 0.25% and with inflation at 2.6%, real interest rates are negative 2.35% -- meaning it would take several severe rate hikes to change the rate environment for gold.

If the ECB does raise rates, the expectation is that it will be gradual in order to not stunt growth. If there is a hike, gold prices could take a hit "we may see some profit taking in gold," says Will Rhind, head of US operations for ETF Securities. "However, I think that will be offset by safe haven buying and this fear of inflation."

Gold prices didn't flinch Thursday when only 388,000 people filed for jobless claims in the week ended March 26th. The figure along with the ADP employment report Wednesday, which said that the private sector added 201,000 jobs in March, bodes well for Friday's jobs number.

"Gold does appear to be lagging the more industrial metals," says James Moore, research analyst at The silver/gold ratio, as of Wednesday's close, was 37 which means silver is outpacing the yellow metal. "Reaction [today] is likely to be fairly muted as traders await tomorrow's key non-farm payrolls reading which will likely determine the next leg of direction for risk appetite."

Here's how the jobs number should play out for gold. A solid reading will increase risk appetite for stocks, decrease the need of buying gold as protection and raise the question of will the Federal Reserve alter its $600 billion bond buying program before it expires in June. The end of free money makes gold less appealing as a safe haven. A weaker reading, however, might ignite gold buying especially into a weekend, which has been a wild card for investors.

According to George Gero, senior vice president at RBC Capital Markets, gold was helped Thursday by short covering ahead of the jobs number. "It doesn't bode well to be short for Friday's reports and weekend headlines upcoming."

Gold mining stocks, a risky but profitable way to buy gold, were mostly higher. Kinross Gold(KGC) was flat at $15.76 while Goldcorp(GG) was up 1.27% to $50.09.

Other gold stocks, Agnico-Eagle(AEM) and International Tower Hill(THM) were trading at $65.95 and $10.06, respectively.

Randgold Resources(GOLD) is a stock to watch today after the company said reserves and resources rose by 5% in 2010 and better grade was also found at one if its mines. Average grade is higher than 4 grams per ton.

Randgold is forecasting production increases and lower cash costs over the next five years. Randgold has hit snags recently as investors worried that civil unrest in the Ivory Coast would delay or stop production at its Tongon mine, which is set to produce 260,000 to 270,000 ounces of gold this year. Unlike some of its peers in the area, Randgold has reportedly not had to slow output.

"It's a challenging environment that we have to work through," says CEO Mark Bristow. Bristow was hoping to lower cash costs to $600 an ounce, but as of the fourth quarter it cost $766 to mine an ounce of gold. Shares were soaring almost 9% to $80.45.

--Written by Alix Steel in New York.

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