Gold rises in thin trade on Europe hopes

NEW YORK/LONDON Thu Oct 6, 2011 3:43pm EDT

A goldsmith displays a gold nugget at a jewellery workshop in Karachi December 3, 2009. REUTERS/Akhtar Soomro

A goldsmith displays a gold nugget at a jewellery workshop in Karachi December 3, 2009.

Credit: Reuters/Akhtar Soomro

NEW YORK/LONDON (Reuters) - Gold rose in thin trade for a second session on Thursday, boosted by a rally in equities and commodities after new liquidity measures from the European Central Bank fueled economic optimism.

Silver jumped more than 5 percent, rising in tandem with industrial commodities led by copper and crude oil, as encouraging U.S. jobless claims data triggered gains across the board ahead of Friday's key nonfarm payrolls report.

This week, the safe-haven buying that helped bullion log a three-year rally was largely absent, and neither did the metal trade consistently with risk assets, underscoring investors' confusion about the role of gold in financial markets.

Gold prices traditionally rise in times of economic uncertainty.

"I really don't see the safe-haven attraction of gold is going to change very much because of all the financial problems in Europe and in the western world," said Leo Larkin, metals equity analyst at Standard & Poor's.

"There is still a lack of confidence in financial assets."

Spot gold was up 0.6 percent at $1,651 an ounce by 2:41 p.m. EDT.

Silver rose 4.8 percent to $31.84 an ounce, its biggest one-day gain in nearly two months.

Bullion has ended higher in five of its last six sessions, on track to post its first weekly rise in the past five weeks.

U.S. gold futures for December delivery settled up $11.60 at $1,653.20 an ounce.

U.S. COMEX futures' trading volume was thin for a second straight day at about 55 percent below its 30-day average, set to be the weakest since June, Reuters preliminary data showed.

Recent low turnover suggests bullion's gains of about 2 percent so far this week might be short-lived.

"Continued uncertainty and choppiness in the metal's prices have discouraged traders from participating in gold," FC Stone commodity broker George Nickas said.

Nickas said Friday's employment report could confirm the more positive tone in the stock market this week, which in turn may give bullion a firmer direction.

Economists expect September U.S. nonfarm payrolls to have risen by 60,000 jobs, after a flat reading for in August.

GOLD UP ON EUROPE HOPES

Wall Street rose for a third day after the European Union's executive arm said it would present a plan for member states to coordinate a recapitalization of their banks, as regulators met to reassess the capital buffers of stressed lenders.

Gold benefited on inflation concerns after the ECB threw a lifeline to commercial banks by turning up its liquidity pumps to provide longer-term cheap money for the growing number of European lenders.

The moves came amid growing fears that Greece may be forced to default within months, setting off a chain reaction of sovereign downgrades and bank failures. Earlier this week, mounting debt fears dragged on stock markets, which prompted investors to sell gold to cover losses elsewhere.

Gold recorded its biggest decline in nearly three years last month as selling to cover heavy stock market losses pulled prices more than 20 percent from record highs and prompted a period of intense volatility.

Platinum group metals rose on the back of a 5-percent rally in copper. Spot platinum gained 1.7 percent at $1,510.74 an ounce, while spot palladium added 5.4 percent at $601.22 an ounce.

(Editing by Dale Hudson)

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