PRECIOUS-Gold falls ahead of U.S. payrolls report

Fri Jul 6, 2012 8:04am EDT

Related Topics

(Updates prices, rewrites throughout)

* Central bank easing boosts dollar, pressures gold

* Spot gold may fall to $1,586/oz -technicals

* Coming Up: U.S. June non-farm payrolls; 1230 GMT

By Maytaal Angel and Rujun Shen

LONDON, July 6 (Reuters) - Gold prices edged down on Friday as a stronger dollar reduced European demand for the metal and as investors waited for U.S. jobs data to help gauge the health of the world's top economy.

Some traders said Thursday's better-than-forecast private U.S. employment data indicated that the non-farm payroll numbers due on Friday could also be robust, dampening hopes for further quantitative easing and hurting appetite for gold, traditionally seen as a hedge against inflation.

Spot gold was down at $1,594.96 an ounce at 1133 GMT from $1,604.33 at Thursday's close and was on course for a weekly fall of 0.2 percent.

"I would certainly highlight yesterday's ADP (private sector employment) number. If that means we're going to get good non-farm payrolls this afternoon, the likelihood of (a third round of U.S.) quantitative easing diminishes significantly, which is very bad for gold," Natixis analyst Nic Brown said.

Quantitative easing by central banks devalues paper currencies and boosts appetite for hard assets such as gold.

The U.S. gold futures contract for August delivery edged down 0.85 percent to $1,595.50.

Adding pressure to gold, the dollar stayed close to five-week highs against the euro on investor disappointment that the European Central Bank did not follow its rate cut Thursday with bolder easing measures.

The ECB cut followed on from similar action by the Chinese and UK central banks, which together only served to signal a growing level of alarm about the world economy, although suggestions of coordinated cuts were played down.

"While the ECB cut was near-term bearish for gold as it weakened the euro, it may be more bullish longer term. Added global liquidity with policy easing measures from the euro zone, China, and the Bank of England may stimulate demand for hard assets, including gold," said HSBC in a note.

Key to the question of added global liquidity, however, is the U.S. jobs report due at 1230 GMT.

Thursday's data showed U.S private employers had stepped up hiring in June and that the number of Americans filing new claims for jobless benefits last week fell by the most in two months, hopeful signs for the struggling labour market.

A Reuters poll showed non-farm payrolls were expected to expand by just 90,000 jobs in June.

PHYSICAL BUYING SUBDUED

There was little support for gold from the physical market, where bullion demand remained subdued after prices rose above $1,600 and potential sellers eyed $1,620 or above, dealers said.

"The current price level isn't attractive enough to lure buyers back," said Peter Tse, director at ScotiaMocatta in Hong Kong, adding that jewellers were likely to enter the market if prices dropped to $1,550 to $1,560.

Technical analysis suggested that spot gold could fall to $1,586 an ounce during the day, Reuters market analyst Wang Tao said.

In another sign of weak physical demand, Hong Kong shipped 75,456 kg of gold to mainland China in May, down 26 percent from the previous month, trade data showed.

In other precious metals, silver dropped 0.87 percent to $27.42 an ounce, while platinum eased 0.64 percent to $1,459.75 an ounce, and palladium fell 0.63 percent to $577.10.

Holdings of the largest gold-backed exchange-traded-fund (ETF), New York's SPDR Gold Trust and that of the largest silver-backed ETF, New York's iShares Silver Trust remained unchanged on Thursday from Wednesday. (Reporting by Maytaal Angel; editing by Jason Neely and Jane Baird)

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