LONDON Gold rose on Friday, boosted by the prospect of central banks buying the precious metal to diversify their reserves and as the market waited for key economic data from the United State.
Spot gold was bid at $1,094.55 a troy ounce at 5:31 a.m. EST from $1,089.55 late in New York on Thursday. The precious metal earlier this week hit a record high of $1,097.25 an ounce, a gain of more than 25 percent this year.
The trigger for the latest surge was news earlier this week that the International Monetary Fund had sold 200 metric tons of gold to the Reserve Bank of India for $6.7 billion.
"People are focusing on pent up demand for gold from central banks in emerging markets," said Michael Lewis, head of commodities research at Deutsche Bank.
"The central bank community for the first time in 20 years is possibly going to be a net buyer of gold having been a net seller since 1988 ... Today the market will also focus on the U.S. jobs data and how the dollar reacts."
U.S. non-farm payrolls for October due at 8:30 a.m. EST are expected to show a fall of 175,000 compared with a drop of 263,000 in September and the unemployment rate is forecast at 9.9 percent from 9.8 percent.
"If the unemployment rate breaches the psychological 10 percent level the dollar could come under pressure," a trader said. "But if the data are better than the consensus we could see a retreat in gold."
A weaker U.S. currency dollar makes commodities cheaper for holders of other currencies, while gold is often used by investors as an alternative to the dollar.
Gold rallied $25 on Tuesday, largely driven India's purchase of gold from the IMF, which soothed investor nerves about possible oversupply. But it surprised the market, which had expected China to be the most likely buyer.
"Most central banks outside of the US and Europe have low gold reserve ratios, Calyon said in a note.
"Those central banks with low reserve ratios and are keen to diversify into gold, notably those located in Asia, will be potential candidates to buy the remainder of the IMF's 203.3 tons of gold in an off-market purchase."
The high chances of Asian central bank gold purchases were reinforced by Sri Lanka, which said on Thursday it had been buying gold for the last five or six months.
Linked in with this is the dollar, which central banks will sell when they switch to gold from U.S. Treasuries.
However, some think Asian central banks may not hurry to follow India's lead given current record prices and the availability of cheaper domestically produced gold.
The central bank story has offset some selling by investors as seen in the world's largest gold-backed exchange-traded fund, SPDR Gold Trust.
SPDR's holdings fell 0.055 metric tons to 1,108.344 metric tons on Thursday, marking the first decline since October 30.
Silver was at $17.52 from $17.37 late on Thursday, platinum at $1,358 from $1,353.50 and palladium at $329 from $328.50.
(Reporting by Pratima Desai; editing by Keiron Henderson)