Gold rallied over 1.5 percent on Friday, on track for its biggest one-day gain since November, as disappointing US job data fuelled expectations that the Federal Reserve will continue its bullion-friendly bond purchases. The metal snapped three consecutive days of sharp losses after the Labour Department said US employers in March hired at the slowest pace in nine months by adding just 88,000 non-farm jobs.
Heavy gold short-covering and sharp losses in US equities also lifted bullion prices. The weak data reduced the chance the Fed would alter its economic stimulus policy, known as qualitative easing. “The payrolls report gives more credence to the idea that we are not going to see any tapering off of QE3. It’s just a knee-jerk response, and I don’t think it necessarily indicates that the market has bottomed out here,” said Bill O’Neill, partner of commodities investment firm LOGIC Advisors.
Gold is used by many as a hedge against inflation, which can be brought on by central banks’ monetary stimulus. The precious metal is still set to fall 1.5 percent for the week for one of its sharpest weekly declines since the start of the year. Heavy outflows from gold exchange-traded funds and sharp losses of prominent bullion bull John Paulson’s gold fund also weighed on investor sentiment.
Fund selling push gold to a 10-month low on Thursday as signs of an improving US economy stirred fears the Fed might halt its stimulus earlier than expected. Gold accelerated gains on the payrolls data and was up $24, or 1.55 percent, at $1,576.71 by 1:40 pm EST (1740 GMT). US Comex gold futures for June delivery climbed $24.50, or 1.58 percent, to $1,576.90 an ounce.
Trading volume, however, was relatively weak, given the rally. Turnover was at 175,000 lots, about 10 percent below its 30-day average, preliminary Reuters data showed. Prior advances in the labour market recovery had fuelled discussion at the US central bank whether to cut back its third round of bond purchases, perhaps as soon as this summer. Investor interest continued to recede on Thursday, with bullion holdings in major gold exchange traded funds monitored by Reuters dropping to their lowest level since August 2012. In other precious metals, silver gained 1.2 percent to $27.22 an ounce. Among platinum group metals, platinum climbed 1 percent to $1,535, while palladium edged down 0.1 percent to $723 an ounce.
