Gold prices climb above $1,600/oz as dollar wilts
LONDON - Gold climbed back above $1,600/oz on Friday after data showing that the US 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%.
The metal initially dropped after the data indicated that US 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 was up 0,8% at $1,602.30/oz at 2.02pm GMT, while US gold futures for December delivery were up $14.80 at $1,605.50. Spot prices earlier rose as high as $1,599.61.
Gold is still down 1.6% 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.
Investors hoping for decisive action to combat the eurozone debt crisis were then disappointed by a policy statement from Mr Draghi on Thursday. Some had hoped the ECB would immediately revive a sovereign bond-buying programme.
"Europe will have to move fast, since QE3 (a third round of quantitative easing) chances are shrinking very quickly," said Andrey Kryuchenkov, an analyst at VTB Capital. "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 mutualised debt, more funds into the ESM or even a banking licence for the ESM."
The stronger-than-expected jobs data sent stock markets higher, with European shares climbing 2.2%. Crude oil prices rallied $3 a barrel on hopes for stronger demand from the world's biggest oil consumer, while industrial metals firmed.
The dollar 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," said Stephen Stanley, chief economist at Pierpoint Securities. "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."
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 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 dollar weakness and further central bank buying are required to drive returns higher."
Among other precious metals, silver was up 2.2% at $27.69/oz.
Spot platinum was up 1.3% at $1,395.49/oz, while spot palladium was up 1.7% at $574.97/oz.
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