Gold Edges Higher on Economic Fears, Despite US Payrolls

By: Reuters

Gold edged up Friday, resuming its month-long rally as a stronger-than-expected U.S. payrolls report failed to quell fears of a double-dip recession and expectations of quantitative easing  by central banks.

AP

Bullion is poised to end the week up nearly 4 percent, its fifth straight weekly gain, a day after investors scrambled to meet margin calls elsewhere as Wall Street dived. Major global indexes extended losses Friday on mounting fears about a stalled U.S. economy and a widening European debt crisis.

Investors piled into gold on worries about government currency and bond market interventions as well as a likely renewal of monetary easing by central banks around the world.

"Gold is reacting to a gloomy economic outlook and the expected responses by governments, as it is very plausible to expect that governments will keep printing paper money,'' said James Dailey, portfolio manager of TEAM Financial Asset Management, which oversees $200 million in assets.

Bullion gained after sources close to the matter told Reuters the European Central Bank is ready to buy Italian and Spanish bonds if key structural reforms are brought forward.

Spot gold [XAU=  1662.25    -2.25  (-0.14%)   ] was up 0.6 percent at $1,658.59 an ounce, after it hit a record $1,681.67 on Thursday, before sharply reversing to end lower.

U.S. December gold futures  were up $2.20 at $1,661 an ounce. Independent investor Dennis Gartman, however, said a bearish technical reversal and market preference for cash over riskier assets had prompted him to cut his gold positions by half.

A weaker dollar [.DXY  74.60    -0.52  (-0.7%)   ] against a basket of currencies helped support the precious metal. A weak dollar makes gold cheaper for holders of other currencies.

"Gold is waiting to see where equity markets settle. There may be some position covering in equities and potentially some position covering in gold as well," said Ole Hansen, analyst at Saxo Bank.

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Gold has risen more than 17 percent this year as loose monetary policy in the United States in recent years has weighed on the dollar. Investors also use the metal as a hedge against inflation.

Citing enhanced contagion risk from the European debt crisis, Morgan Stanley lifted its 2011 gold price forecast to $1,511 an ounce from $1,401 and raised this year's silver price forecast to $36.21 an ounce from $31.39.

"Given current market anxieties regarding debt and growth, silver prices are likely to revisit their recent highs as all of the drivers for the September 2010 to April 2011 price surge remain intact," Morgan Stanley said.

Silver [XAG  Unavailable      ()   ] traded lower at $38.07, down 3.4 percent.

Holdings of the largest gold-backed exchange-traded-fund (ETF) , New York's SPDR Gold Trust [GLD  161.75    1.11  (+0.69%)   ], was little changed on Thursday from Wednesday, while holdings of COMEX Gold Trust [IAU  16.22    0.11  (+0.68%)   ] last rose 1.9 percent.

Platinum [XPT=  1712.35  ---  UNCH    ] extended losses from the previous session when it fell following news that Impala Platinum had improved its wage offer to avert a strike.

It fell to $1,714.50 from $1,717.80 on Thursday.

"The PGMs (platinum group metals) continue to succumb to selling pressure ... amid concern of slowing economic activity and the threat slowing economic activity will reduce auto-catalyst and jewellery related demand," James Moore, an analyst at thebulliondesk.com wrote in a note.

Palladium [PAU1=  Unavailable      ()   ] edged down to $738.72 from $741.18 on Thursday.

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