PRECIOUS-Gold rallies as weak U.S. jobs data affirms Fed easing

Fri Apr 5, 2013 3:44pm EDT

* Heavy short-covering from 10-month low boosts gold buying
    * Gold still on track for sharp weekly loss despite rally
    * Paulson & Co's gold fund suffered heavy losses in Q1
    * Coming up: U.S. wholesale data Tuesday

 (Updates market details, prices)
    By Frank Tang
    NEW YORK, April 5 (Reuters) - Gold rallied over 1.5 percent
on Friday, its biggest one-day gain since November, as
disappointing U.S. job data fuelled expectations the Federal
Reserve will continue its bullion-friendly bond purchases.
     The metal snapped three consecutive days of sharp losses
after the Labor Department said U.S. employers in March hired at
the slowest pace in nine months, adding just 88,000 non-farm
jobs. Heavy gold short-covering and sharp losses in U.S.
equities also lifted bullion prices. 
    The weak jobs data reduced the chance the Fed would alter
its current $85 billion monthly purchases of mortgage-backed
securities and Treasuries known as qualitative easing in a bid
to boost economic growth.
    "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 still lost over 1 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. 
    Gold accelerated gains throughout the session on the
payrolls data and was up 1.7 percent at $1,579.60 by 2:54 p.m.
EST (1854 GMT), having earlier hit a high at $1,580.80.
    U.S. Comex gold futures for June delivery settled up 
$23.50 at $1,575.90 an ounce. 
    Trading volume, however, was relatively weak, given the
sharp rally. Turnover was at around 200,000 lots, in line with
its 30-day average, preliminary Reuters data showed.
    Gold's response to the payrolls report was particularly
strong because previous advances in the labor market had fuelled
discussion within the U.S. central bank about whether to cut
back the third round of bond purchases, perhaps as soon as this
summer.
    Year to date, gold is down around 6 percent, at risk of
ending its bull run after rising for a 12th consecutive year in
2012. 
    
    SHORT COVERING
    On Friday, investors in droves bought back their bearish
bets, boosting gold prices in a process known as short-covering,
analysts said. Fund selling pushed gold to a 10-month low on
Thursday on an improving U.S. economic outlook.
    Investor interest continued to recede on Thursday, with
bullion holdings in major gold exchange traded funds monitored
by Reuters dropping to their lowest since August
2012. 
    Billionaire investor John Paulson told clients on Thursday
that most of his portfolios were in the black. His gold fund,
however, notched double digit losses during the first three
months of 2013. 
    There was market talk that heavy liquidation in gold ETFs by
large hedge funds to meet client redemptions has weighed heavily
on the price of gold.
    In other precious metals, silver gained 1.5 percent
to $27.30 an ounce. Among platinum group metals, platinum 
rose 0.8 percent to $1,531.50, while palladium edged up
22 cents to $724.22 an ounce. 
    
 2:54 PM EST     LAST/    NET   PCT      LOW    HIGH  CURRENT
                SETTLE   CHNG  CHNG                       VOL
 US Gold JUN   1575.90  23.50   1.5  1549.00 1580.80  173,765
 US Silver MAY   27.22  0.453   1.7   26.730  27.300   42,216
 US Plat JUL   1535.50  17.70   1.2  1518.20 1539.80   11,925
 US Pall JUN    723.90  -1.55  -0.2   716.30  734.35    5,273
                                                               
 Gold          1579.60  26.89   1.7  1549.88 1580.80         
 Silver         27.300  0.410   1.5   26.810  27.330
 Platinum      1531.50  11.50   0.8  1518.50 1536.00
 Palladium      724.22   0.22   0.0   719.00  731.50
                                                               
 TOTAL MARKET              VOLUME          30-D ATM VOLATILITY
                CURRENT   30D AVG  250D AVG   CURRENT     CHG
 US Gold        195,234   192,081   172,420     15.45    0.15
 US Silver       52,420    51,139    52,243     23.36    0.66
 US Platinum     12,062    15,811    11,817     15.46    1.19
 US Palladium     5,327     6,647     5,187                  
                                                               
    

 (Additional reporting by Clara Denina in London; Editing by
Kenneth Barry)