Gold Prices Climb as Dollar Wilts

Gold prices climbed on Friday after news that the US economy added more jobs than expected last month. This news boosted the appetite for risk which, as a result, pushed the dollar sharply lower against the euro and boosting the stock markets 2 percent.

By: Reuters
Published: Friday, 3 Aug 2012

Gold prices climbed on Friday after data showing that the U.S. economy added more jobs than expected last month boosted appetite for risk, pushing the dollar sharply lower against the euro and boosting stock markets 2 percent.

The metal initially dropped after the data, which indicated that U.S. employers hired 163,000 workers in July, the most in five months, curbing expectations that the Federal Reserve will launch further monetary stimulus measures to boost growth.

However, it quickly reversed those losses as the dollar failed to maintain a brief recovery from lows.

Spot gold [XAU=1604.40(+0.92%)] was up 0.8 percent at $1,602 an ounce, while U.S. gold futures [GCCV1=1604.00(+1.05%)] for December delivery were up $9.10 at $1,597. Spot prices earlier rose as high as $1,599.61.

Gold is still down 1.6 percent this week, however, on track for its biggest weekly loss in six weeks. It has erased most of the gains it made after European Central Bank (ECB) chief Mario Draghi boosted the euro last week by pledging to do whatever necessary to support the single currency [EUR=X 1.2369 (+1.55%)].

Investors hoping for decisive action to combat the euro zone debt crisis were then disappointed by a policy statement from Draghi on Thursday. Some had hoped the ECB would immediately revive a sovereign bond-buying program.

"Europe will have to move fast, since QE3 chances are shrinking very quickly," Andrey Kryuchenkov, an analyst at VTB Capital, said. "The ECB's mandate is limited and the European Stability Mechanism (ESM) has little firepower left.

"Since there will be a lower probability of another liquidity injection (from the Fed), Europe will have to get itself together and commit to the likes of mutualized debt, more funds into the ESM or even a banking license for the ESM."

The stronger-than-expected jobs data sent stock markets higher, with European shares climbing 2.2 percent. Crude oil prices rallied $3 a barrel on hopes for stronger demand from the world's biggest oil consumer, while industrial metals firmed.

The U.S. dollar [.DXY 82.40(-1.15%)] pared losses against the euro in the immediate wake of the data, but its upward move failed to gain traction as an increase in the jobless rate worried some economists.

"Even with the better-than-expected payroll number, it's not sufficiently big to change the big-picture view," Stephen Stanley, chief economist at Pierpoint Securities, said.

"The economy is growing, but not at a satisfactory rate to bring down unemployment. If the Fed had considered doing QE3, I suspect today's number pushes them half a step back."

ECB Disappoints

Analysts said that gold's ability to hold near current levels despite a lack of fresh action from the Fed and ECB is a strong positive signal despite this week's losses.

"Gold's performance can be considered resilient in the face of U.S. dollar strength and investor liquidation," Deutsche Bank said in a note on Friday.

"We believe negative real interest rates will underpin gold returns, but we expect a resumption in U.S. dollar weakness and further central bank buying are required to drive returns higher," it added.

Among other precious metals, spot silver [XAG=27.77(+2.47%)] was up 2.5 percent at $28 an ounce.

The gold-silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, rose back to 58.5 on Friday as the grey metal underperformed. Silver is close to its cheapest level against gold in nearly two years.

CME Group said it will cut margins for COMEX silver futures [SIU2=27.73(+2.72%)] for the third time since February to help to boost trading interest, as stagnant prices sapped investors' appetite.

CME, the biggest operator of U.S. futures exchanges, also said it would cut margins on platinum and palladium futures.

Spot platinum [XPD=577.25(+2.13%)] was up 1.3 percent at $1,395 an ounce, while spot palladium [XPT=1404.75(+2.02%)] was up 1.7 percent at $575 an ounce.

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