Gold rises and rebounds from slump on safe-haven bid

NEW YORK/LONDON Sat Jun 5, 2010 2:04am IST

A gold jewellery shop owner arranges ornaments at a counter in Kolkata May 27, 2010. REUTERS/Parth Sanyal

A gold jewellery shop owner arranges ornaments at a counter in Kolkata May 27, 2010.

Credit: Reuters/Parth Sanyal

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NEW YORK/LONDON (Reuters) - Gold rose on Friday, rebounding from early losses after weaker-than-expected U.S. employment data pushed the stock market and many commodities sharply lower, raising the safe-havens bid for bullion.

"With the employment numbers coming short of expectations and the majority of jobs being census workers rather than private payrolls, I think it shows there's a chance the economy is not recovering as fast as previously believed," said Tom Pawlicki, precious metals analyst at MF Global in Chicago.

"If the odds of a double-dip recession increasing based on this, I think that would be positive for gold," he added.

Spot gold rose to $1,217.45 an ounce by 3:10 a.m. EDT against $1,206.05 an ounce late in New York on Thursday. Earlier, it touched a session low of $1,196.65 an ounce. U.S. gold futures for August delivery rose $7.70 to settle at $1,217.70 an ounce.

A slew of news in Europe, from confusion over the health of Hungary's finances to unsubstantiated talk of concern over Societe Generale's (SOGN.PA) derivatives business, contributed to fears that drove investors to seek safety in gold.

"Second," Pawlicki added," the influx of news that took place in Europe overnight feeds the safe-haven play as well," citing the Hungary and Societe Generale stories, as well as comments from French Prime Minister Francois Fillon, who said he saw parity between the dollar and the euro as "good news."

"In those kinds of uncertainty, gold benefits," he added.

Worries that Europe's sovereign debt troubles could spread flared again after a Hungarian official said the country was at risk of a Greek-style credit crisis [ID:nLDE65306M].

Those comments along with talk from France drove the euro to a four-year low against the dollar. <USD/>

Gold has benefited this year from nervousness in financial markets about the euro zone. Fears that sovereign debt problems could hurt the wider economy sent gold in mid-May to an all-time high at $1,248.95 an ounce.

"The question is, 'What do you want to hold in an environment like this?' And people are answering that question today by (buying into) gold," said Michael Widmer, an analyst at Bank of America-Merrill Lynch.

The U.S. Labor Department said on Friday payrolls rose 431,000, buoyed by recruitment for the decennial census as the government hired 411,000 extra workers.

That was the largest monthly increase since March 2000 and marked a fifth straight month of gains, but missed expectations of 513,000 jobs. Some analysts also pointed to the composition of payrolls growth coming mostly from temporary census workers instead of private employers, indicating the economy is growing only slowly.

The report knocked stocks, the euro and industrial commodities, with equities extending losses by more than 2 percent. .EU .N

INVESTMENT STRONG

Gold investment has been firm, with coin sales strong in Europe and the United States. Rand Refinery Ltd., the world's largest gold refiner, said production of South Africa's Krugerrand gold coins soared by 50 percent in a week as the euro zone debt crisis drove up investor demand.

The world's largest gold exchange-traded fund, SPDR Gold Trust (GLD.P), reported a 21.3-tonne inflow on Thursday that took its holdings to a record 1,289.839 tonnes. <GOL/SPDR>

London's ETF Securities also reported inflows of 41,423 ounces of metal into its gold-backed exchange-traded products that day, worth around $50 million.

"ETF investors' continued willingness to load up on gold exposure provides a degree of comfort that a price floor is near," said UBS analyst Edel Tully in a note.

Industrial precious metals -- silver, platinum and palladium -- slid with base metals after the jobs report.

Platinum slipped to $1,510.50 an ounce from $1,542.50, palladium to $424.50 from $448.50, and silver fell to $17.34 from $17.94 an ounce late on Thursday.

In the longer term, platinum group metals in particular are expected to be well supported by a recovery in demand.

"Improving auto and industrial demand bodes well for both metals," said Barclays Capital in a note on Friday. "Potential supply disruptions in South Africa could push the platinum market into a deeper deficit."

(Reporting by Carole Vaporean; Editing by David Gregorio)

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