Investors Turn to Gold on Weak Jobs Data

Gold and Silver are both higher Friday as investors jump into the precious metals after the jobs report showed that unemployment is rising and businesses are hiring less. Many were expecting a better jobs reports, so this month's report came as a real disappointment.

By Alix Steel
06/03/11 - 11:23 AM EDT

NEW YORK(THE STREET) -- Gold and silver prices continued to diverge Friday as investors jumped into gold as a safe-haven asset while silver was dumped to the sidelines.

Gold for August delivery was adding $5.40 to $1,538.10 at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,548.40 and as low as $1,524.90 while the spot gold price was up $3.10, according to Kitco's gold index.

After a dismal jobs report and an even worse market reaction, investors turned to gold a safe place to stash cash for the weekend. The unemployment rate rose to 9.1% in May while the private sector added only 83,000 jobs and nonfarm payrolls increased by 54,000 compared to the 151,000 expected. April's numbers were also revised lower.

Although the markets were already pricing in some kind of bad news, the average jobs added during February, March and April were 230,000, so May's reading was particularly disappointing. Gold prices were benefiting from the rush to safety.

Many traders on Thursday had also been considering shorting gold, which means betting prices will fall, so some of Friday's rally might be reversing those positions into the weekend.

"I think a lot of people were anticipating that we would see a much better jobs report," says Phil Streible, senior market strategist at Lind-Waldock, "so people were looking at the short side of the gold market. I think that's a very foolish decision."

The key level experts are watching is $1,550 an ounce. If the dollar is weak and gold powers through that level then the metal could eye its intraday record of $1,577, but the psychological level could also prompt investors to take profits where they can.

On the flip side, silver was suffering from being an industrial metal Friday rather than a safe-haven currency. Prices were down 23 cents to $35.97.

"We had three weak ISM reports" from China, the EU and U.S., argued Streible, "so the demand has come down [for silver] and I think that gold/silver ratio is going to continue to grind its way higher." The higher the ratio means that it takes more silver to buy an ounce of gold which favors a lower silver price and a higher gold price.

Gold mining stocks were mixed. Barrick Gold(ABX) was down 0.41% at $46.03 while Newmont Mining(NEM) was flat at $55.11. Other gold stocks, Goldcorp(GG) and AngloGold Ashanti(AU) were trading higher at $49.13 and $45.32, respectively.

-Written by Alix Steel in New York.

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