Gold up, EU plan to fight debt crisis expected

LONDON Fri Dec 2, 2011 9:03pm IST

A storekeeper arranges gold bracelets in Singapore May 15, 2006. REUTERS/Nicky Loh/Files

A storekeeper arranges gold bracelets in Singapore May 15, 2006.

Credit: Reuters/Nicky Loh/Files

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LONDON (Reuters) - Spot gold edged up on Friday as investors bought the metal along with other risk assets, encouraged by promising jobs data from the United States and signs that euro zone policymakers are working hard to resolve the debt crisis.

The U.S. unemployment rate fell to a 2-1/2 year low of 8.6 percent in November and companies stepped up hiring, data released earlier showed, adding to previous evidence that the world's largest economy is gaining momentum.

Also boosting risk appetite, there is widespread investor expectation that a European summit next week could finally yield a concrete solution to the euro zone debt crisis, with France and Germany on Monday to outline joint proposals for the meeting.

Meanwhile the new head of the ECB has said he stands ready to act more aggressively to fight Europe's debt crisis if political leaders agree next week on much tighter budget controls in the 17-nation euro zone.

"Gold use to be working as a fear indicator but at the moment it's trading more or less like a risk asset. Risk is on because of the better employment data and the expectations for the E.U. summit are very high," said Commerzbank analyst Eugen Weinberg.

Spot gold edged up 0.24 percent to $1,747.94 an ounce by 1451 GMT from 1,743.74 in late trades on Thursday. It is on course to rise more than 4 percent from a week earlier, its biggest weekly gain in a month.

U.S. gold rose 0.66 percent to $1,750.80 an ounce.

Gold rallied earlier in the week after the world's major central banks joined forces to boost liquidity, but the momentum quickly faded as investors realised that the move would not solve Europe's debt problems.

In this regard, next week's European summit, dubbed the last chance to save the euro by the popular press, will be key for gold, which has lost ground as a safe haven asset of choice in the current crisis.

"Liquidity is the focus of the market. Gold's appeal as a safe haven may return only when liquidity improves and market sentiment warms up," said Hou Xinqiang, an analyst at Jinrui Futures.

Technical analysis suggested spot gold could drop to $1,722 during the day, said Reuters market analyst Wang Tao.

Supporting sentiment in gold, South Korea's central bank bought 15 tonnes in November, after purchases of 25 tonnes in June and July, as central banks around the world, especially in emerging economies, have aggressively bought bullion over the past few months.

"It's not a surprise, as gold seems to be the only thing central banks can buy to diversify their reserves as economic problems seem to spread around the world," said Ronald Leung, a physical dealer at Lee Cheong Gold Dealers.

Spot palladium rose more than 5 percent to hit a day high of $658 an ounce, its highest since mid November and on course for its biggest weekly gain since November 2008. It was later at $647.25 an ounce from $625.30.

Helping the metal was technical buying brought on by gains sparked Thursday following news that Norilsk Nickel (GMKN.MM), the world's biggest palladium maker, expects the market to be in a deficit in 2012 due to sharply lower Russian supplies.

Silver was at $33.06 an ounce from $32.72, while platinum was at $1,553.24 an ounce from $1,555.25.

(Reporting by Maytaal Angel; Additional reporting by Rujun Shen; editing by Jason Neely)

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