April 7, 2017 / 4:47 AM / 4 months ago

Gold rises to five-month high, gains capped by strong dollar

FILE PHOTO - Gold bullion is displayed at Hatton Garden Metals precious metal dealers in London, Britain July 21, 2015.Neil Hall/File Photo

NEW YORK/LONDON (Reuters) - Gold hit a five-month high on Friday after U.S. jobs data dampened expectations that the U.S. Federal Reserve will raise interest rates, but the metal gave up most gains as the dollar rose and safe haven demand ebbed.

U.S. employers added the fewest number of workers in 10 months in March, boosting gold, which is most attractive to investors in a low interest rate environment.

Spot gold XAU= rose 0.2 percent to $1,253.71 an ounce by 2:44 p.m. EDT (1844 GMT )after touching its highest since Nov. 10 at $1,270.46, putting it on track for a fourth consecutive week of gains. U.S. gold futures GCcv1 climbed 0.3 percent to settle at $1,257.30 an ounce.

Gold was also underpinned by investors looking for safety after the United States fired cruise missiles at a Syrian air base, escalating tensions with Russia and Iran.

Later in the session, however, safe haven demand faded and the dollar index .DXY climbed to three-week highs.

"Unless you can make a case that the geopolitical risk continues to escalate, I'm struggling with this positive sentiment in the gold market," said Rob Haworth, senior investment strategist for U.S. Bank Wealth Management in Seattle.

"The one factor that's in favour for gold is that you had pretty negative sentiment coming into the year, so there is room for speculators to increase their bullish positions."

Investors were cautious ahead of the meeting between U.S. President Donald Trump and Chinese President Xi Jinping, but Trump said on Friday he had made progress in talks and expected them to overcome many problems.

From a technical perspective, Gold has struggled to break above its 200-day moving average in previous sessions but broke out above that key technical level intraday and has tested its upper resistance at $1,264, the Feb. 28 high.

MKS PAMP analyst Tim Brown said if gold consolidated above $1,260 it could be a catalyst for a push higher.

Russia, a staunch ally of Syria, said relations between Washington and Moscow had been seriously damaged by the strike, which was in retaliation for a deadly chemical attack on a rebel-held area of Syria.

Gold is often used as a hedge against political and financial uncertainty and security risks. It has benefited alongside other assets considered safe, such as the yen and U.S. Treasury bonds. [MKTS/GLOB]

Analysts say this support is also unlikely to be sustained as the market shifts its attention back to the elections in France and monetary policy.

"We still feel that increases in U.S. interest rates will prove too much of a headwind for gold prices. As such, we think that the price of gold is likely to fall from about $1,265 today to $1,050 by the end of the year," Capital Economics analysts said in a note.

Spot silver XAG= fell 1.4 percent to $17.97 an ounce, after touching $18.47, the highest since Feb. 27. It was on track for its first weekly loss in four.

Platinum XPT= inched 0.4 percent lower to $952.50 while palladium XPD= also fell 0.4 percent to reach $799.90.

Additional reporting by Nallur Sethuraman in Bengaluru and Jan Harvey in London; Editing by Alexander Smith and Steve Orlofsky

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