Gold rises as stimulus hopes alive after payrolls

Gold Bullion from the American Precious Metals Exchange (APMEX) is seen in this picture taken in New York, September 15, 2011.

NEW YORK (Reuters) - Gold rose around 1 percent on Friday as the dollar slid and equities rallied on data showing U.S. hiring picked up more than expected in July, even as a rise in the unemployment rate fed investor hopes for monetary stimulus from the Federal Reserve.

Despite the daily gain, gold posted its biggest weekly drop in six weeks. Investors sold gold this week when the Fed ended a policy meeting without announcing stimulus, although it said support could be on the way if the economy did not pick up.

The U.S. Labor Department reported that employers hired the most workers in five months, boosting investor sentiment. The report sparked a 2 percent rally on Wall Street and commodities gains across the board led by crude oil. .N <USD/><COM/WRAP> .CRB

At the same time, the unemployment rate rose to 8.3 percent from 8.2 percent in June, inspiring hopes that the Fed might launch a third round of quantitative easing, or QE, purchasing government bonds to keep interest rates low.

"Even though the nonfarm payrolls beat the estimates, the unemployment rate also rose, so the odds for a QE are all the same," said Nicolas Berge, a hedge fund trader at Geneva-based Absolute Capital Group which invests in precious metals, commodities futures and currencies.

"The increasing expectation of central-bank actions is likely to help gold break above its recent trading range," Berge said.

Spot gold was up 0.9 percent at $1,603.30 an ounce by 2:53 p.m. EDT.

U.S. COMEX gold futures for December delivery settled up $18.60 at $1,609.30. Trading volume was about 25 percent below its 30-day norm, preliminary Reuters data showed.

Gold dropped 1.2 percent this week. It has erased most of the gains it made after European Central Bank did not commit to more stimulus following an earlier pledge by ECB President Mario Draghi to do whatever necessary to support the single currency.

FED'S NEXT MEETING

Gold prices have been stuck in a $150 trading range between $1,675 and $1,525 an ounce in the past three months, as a lack of firm commitment by central banks to stimulate failed to attract new buying.

"Even with the better-than-expected payroll number, it's not sufficiently big to change the big-picture view," Stephen Stanley, chief economist at Pierpoint Securities, said.

While the payrolls growth probably dampened the urgency for the Fed to act at its next September 12-13 meeting, further monetary stimulus remains in the cards given the threat to the economy from a potential tightening in U.S. fiscal policy next year and nagging debt troubles in Europe.

Among other precious metals, silver, platinum and palladium all rose on gold's coattails and after CME Group cut their margins after the close of business on Monday.

Silver gained 2.3 percent to $27.73 an ounce. CME has cut its margins three times since February.

Platinum was up 1.7 percent at $1,400.49 an ounce, while palladium rose 2 percent to $576.25 an ounce.

(Additional reporting by Jan Harvey in London; Editing by Marguerita Choy and David Gregorio)