| NEW YORK
NEW YORK Gold rose to near its highest in a month on Friday, boosted by a weak U.S. labor report that illustrated the fragile state of the economic recovery, likely keeping rates low and the dollar weak for awhile.
Bullion jumped, while stocks and oil fell, in the wake of data showing U.S. employers hired 54,000 workers in May, far fewer workers than expected, and the unemployment rate rose to 9.1 percent. Gold was also bolstered by a slump in the dollar index .DXY to its lowest in a month.
Dealers said there were multiple reasons for gold to gain on the latest and strongest evidence of a softening economy: expectations of more cheap money from the Federal Reserve; fears of deflation; a haven from financial risk.
While few analysts were prepared to forecast a double-dip recession, the thought of fresh Federal Reserve funds beyond the end of quantitative easing II (QEII) this month was enough to spur some bids in an otherwise lackluster gold market. U.S. futures trading volumes was a below its norm by a third.
"I think QE3 is going to have to slip back into the vernacular. If we see more (economic) numbers in June that are en par with the ones we've been getting or worse, coming into the fall we'll be looking at some sort of Fed action to try to support economic activity," said Sterling Smith, commodity market analyst at Country Hedging Inc in St. Paul, Minnesota.
Spot gold rose to a two-day peak of $1,546.39 a troy ounce after the payrolls release, but pulled back to $1,541.10 by 3:16 p.m. EDT (1916 GMT) from $1,532.55 an ounce late in New York on Thursday. Gold hit a record high of $1,575.79 on May 2.
Bullion posted its highest weekly close since early May.
August COMEX futures posted $9.7 gains to $1,542.40 an ounce by the close.
Gold priced in sterling hit a record high of 946.79 pounds ($1,548) an ounce, as a weaker dollar across a basket of currencies triggered a rush for the precious metal. It was quoted at 938.55 sterling late in the session.
"This is gold-friendly data ... (it) points to a slackening U.S. economy. In the worst case scenario, we could have a double-dip in the U.S. economy and possibly deflation, which would also help gold," said Robin Bhar, an analyst at Credit Agricole.
Next week's light U.S. economic calendar lists mostly secondary reports. The Federal Reserve's own anecdotal reading of growth and price prospects is out Wednesday and should provide additional clues about the likelihood of QE3.
Investor interest in gold has also been boosted by fears of a Greek debt default and the contagion effects on other euro zone countries such as Ireland and Portugal.
Greece is likely to get a vital slice of aid in July to avoid default, international lenders said on Friday, while the European Union raised the prospect of expanding the bailout of the euro zone state.
The European Commission, the European Central Bank and the International Monetary Fund, ending a month-long review of their bailout program, said Athens had made considerable progress toward repairing its finances, but must step up fiscal and economic reforms.
Investors use gold as a hedge against political and economic insecurity and inflationary pressure. It typically moves opposite to the dollar. When it falls, dollar-denominated commodities cheapen for holders of other currencies.
Spot silver continued its descent of the last three days, falling to $35.18 an ounce, its lowest since May 24. By late session, it was quoted about even with $36.17 late on Thursday. For the week, silver has lost about 4.75 percent.
Investors have been dumping industrial metal silver on a spate of weak manufacturing news. They also fled the white metal after exchange operators in Shanghai and New York increased margins, the money required to trade silver futures.
Weak fundamentals reinforced the sell-off, which has seen silver fall from a $49.51 an ounce hit on April 27.
Platinum ended higher at $1,813 than $1,809.60 previously, and palladium firmed to $780.50 from $767.05 an ounce on Thursday.
(Additional reporting by Sylvia Antonioli; Editing by Alison Birrane and Jane Baird and Jonathan Leff)