July 8, 2011 / 10:00 AM / 8 years ago

PRECIOUS-Gold rallies after weak U.S. payrolls data

(Updates prices, adds detail, comment)

* Much weaker than expected payrolls data lifts gold

* U.S. economy added just 18,000 jobs in June

* Platinum:palladium ratio at four-month low

By Jan Harvey

LONDON, July 8 (Reuters) - Gold prices rose nearly 1 percent on Friday, erasing early losses, as much weaker-than-expected U.S. non-farm payrolls data fuelled fears the recovery in the world’s biggest economy was struggling to gain traction.

Spot gold rose to a fresh two-week high of $1,545.30 an ounce and was bid at $1,543.49 an ounce at 1318 GMT against $1,531.85 late in New York on Thursday. U.S. gold futures GCv1 for August delivery fell $12.70 to $1,543.30.

Employers in June added the smallest number of new jobs in nine months, dashing hopes economic recovery was picking up. Non-farm payrolls rose by only 18,000, the Labor Department said, well below economists’ expectations for a 90,000 rise.

“It is the public sector employment which was the disappointing factor,” said Peter Fertig, a metals consultant at Quantitative Commodity Research. “The market overreacted after yesterday’s ADP report showed a strong increase in the private sector payrolls.”

“We also have in the euro zone a draft document from the EU which spooked bond investors this morning,” he added. “You have some safe haven flows (into gold).”

According to a European Union draft document seen by Reuters, European countries will support banks that fail stress tests if those lenders cannot raise capital from investors within six months.

Worries over the financial health of some euro zone economies, chiefly Greece and Portugal, and over an upcoming discussion of extending the U.S. debt ceiling have tempered risk appetite across financial markets this week, lifting gold.

“A lot of European investors would still like more diversity than just holding euros,” said Mitsui & Co Precious Metals analyst David Jollie. “That can be a risk-aversion thing rather than a view that gold will appreciate in price.”

The cost of insuring Greek and Portuguese government debt against default rose on Friday due to ongoing uncertainty over a second bailout package for Greece.

EURO DECLINES

The euro fell sharply on the weak U.S. jobs report, though it later trimmed losses. A consequently stronger dollar would usually weigh on gold, but the impact of currency moves is currently being outweighed.

Among other precious metals, silver hit a four-week high at $36.81 an ounce and was later bid at $36.71 an ounce against $36.41.

Spot platinum was bid at $1,741 an ounce versus $1,739.85, while spot palladium was at $773.22 an ounce against $781.55.

The platinum:palladium ratio — the number of ounces of palladium needed to buy an ounce of platinum — held at its lowest in more than four months at 2.23 on Friday.

Palladium became increasingly expensive compared with platinum earlier this year, with its ratio falling to 2.16 in February, an eight-year low. But it failed to sustain those gains as jitters over the health of the car industry dented buying interest in the metal, moving back to 2.5.

“From the lows in May, palladium rallied 17 percent while platinum climbed 6 percent, and during the pullback platinum dropped 10 percent, compared to palladium’s 11 percent drop,” said ScotiaMocatta in a monthly report.

“Both metals have, however, found good underlying buying interest and have formed V-shaped rebounds off the lows.”

“After significant price gains in both PGMs in anticipation of economic recovery, prices are now consolidating,” it added. “Considering the extent of the gains and the fact recovery has slowed, prices could well correct further on the downside until demand recovers. Expect dips to be well supported.” (Reporting by Jan Harvey; Editing by Jane Baird)

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