LONDON Gold prices rose on Tuesday as expectations that a sluggish employment market in the United States could spark a fresh round of U.S. quantitative easing drove prices higher, despite the influence of a firming dollar.
Ultra-loose U.S. monetary policy, which keeps real interest rates and consequently the opportunity cost of holding gold low, is a key driver of higher bullion prices. Expectations for a fresh round of QE were lifted by soft U.S. jobs data last week.
Spot gold was up 0.2 percent at $1,643.80 an ounce at 0915 GMT, while U.S. gold futures for June delivery were up $1.20 an ounce at $1,645.10.
Spot prices have declined in five of the last six weeks as QE expectations have fluctuated.
Analysts betting on higher prices say they are concerned that Friday's jobs data, coupled with the end of a jewellers' strike in key consumer India, had not driven prices higher.
"It looks like we need bigger and better news to support gold right now," Saxo Bank vice president Ole Hansen said. "Traders have been wrongfooted on numerous occasions during the last two months on QE on/off talks."
"The non-farm payrolls and India ending the strike should have triggered a stronger bounce, but at this moment, where general softness in commodities has been seen, traders wants to see the cash before jumping back into gold in a major way."
The euro failed to hold onto early gains against the dollar and drifted lower, as cautious buying linked to hopes that soft U.S. payrolls data might bring forward another round of quantitative easing petered out.
Other assets seen as higher risk also retreated, with European shares falling nearly 1 percent, oil prices slipping and base metals on the back foot.
Soft Chinese import data raised concerns about commodities demand growth in the world's largest consumer of many raw materials.
Safe-haven German Bund yields hit six-month lows and the cost of insuring Italian and Spanish debt against default rose sharply on Tuesday as disappointing U.S. jobs data last week further dented appetite for riskier assets.
INDIAN DEMAND SLUGGISH
Gold demand in number one buyer India picked up slightly at the start of the week after a three-week-long jewellers' strike ended, but dealers said demand was surprisingly sluggish.
"For gold to turn a corner and build momentum, physical buying really needs to kick in," said UBS in a note on Tuesday. "The end of the jewellers strike in India provides a good foundation, especially with the Akshaya Tritiya festival on Apr. 24. But prices need to be appropriate.
"Last week, Indian demand only became impressive when gold traded below $1,620," it added. "Appetite from India so far this week has been quite modest. Premiums in China have been above average of late. But in terms of volumes... gold turnover on the Shanghai Gold Exchange is not particularly exceptional."
China's gold output was 26.9 tonnes in February, up 11 percent from January, the Ministry of Industry and Information Technology said on Tuesday, after mining activity rebounded back after the Lunar New Year holidays in January.
China is the world's biggest gold producer and recorded record output last year, although its domestic demand still outstrips supply by hundreds of tonnes a year.
Among other precious metals, silver was flat at $31.52 an ounce. The gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, rose to its highest since early January on Tuesday.
Silver imports into India, the biggest consumer of the white metal, are likely to decline up to 27 percent this year on expectations of volatile prices, the head of the country's biggest bullion importer, ScotiaMocatta's Sunil Kashyap, said on Monday.
Spot platinum was down 0.1 percent at $1,604.99 an ounce, while spot palladium was up 0.7 percent at $642.72 an ounce.
(Reporting by Jan Harvey; editing by Jason Neely)