May 3, 2012 / 12:36 AM / 7 years ago

Gold falls 1 percent, U.S. nonfarm payrolls eyed

NEW YORK/LONDON (Reuters) - Gold fell 1 percent on Thursday as tumbling crude oil prices and weak U.S. service-sector data sent bullion prices to their biggest one-day drop in a month ahead of a key U.S. nonfarm payrolls report.

Figurines in 24K gold are displayed at a Chow Tai Fook Jewellery store in Hong Kong December 6, 2011. REUTERS/Bobby Yip

The metal, which for most of the year has tracked the performance of riskier assets, accelerated losses after data showed the ISM services index fell to 53.5 last month from 56.0 in March, while the employment gauge slipped to the lowest level since December.

Analysts said the weak ISM data, however, was not enough to change the view that the Federal Reserve might hold off on additional quantitative easing, or government bond purchases, following a recent string of strong U.S. economic indicators.

Some investors reduced their bullish bets in gold as hopes for U.S. monetary easing faded. Gold has lost $150 from its peak on February 29 when Fed Chairman Ben Bernanke made no mention of a new round of easing.

A strong reading of the U.S. employment market on Friday would likely further curb speculation on any Fed stimulus, a prospect that had been seen as gold-friendly.

“Things will have to look very weak tomorrow morning to see any upside momentum come back. If the nonfarm payrolls number is stronger, then we’ll see gold really test $1,600 an ounce,” said Carlos Perez-Santalla, a precious metals trader at PVM Futures.

Spot gold was down 1.1 percent at $1,635.20 an ounce by 3:16 p.m. (1916 GMT) for its biggest daily decline since April 4. It touched a one-week low of $1,630.70 earlier in trading.

U.S. gold futures for June delivery settled down $19.20 an ounce at $1,634.80. Trading volume was largely in line with its 30-day average, preliminary Reuters data showed.

U.S. gold investors were digesting new rules from CME Group (CME.O), which sought to clarify revisions in its margin policy for non-hedge positions. There was consternation among Chicago and New York traders about the abruptness of the change that will make trading more expensive for some of the exchange’s most active members.

Gold posted a small loss after moving in a narrow range in April, and the metal’s repeated failure to rise above an area of major technical resistance such as its 100-day moving average has led some momentum traders to turn to better-performing assets such as equities.

Ongoing jitters over the euro zone’s debt crisis and Spain’s ability to finance itself also pressured gold.

WEAK INVESTMENT, PHYSICAL DEMAND

Gold has fallen by about 1.4 percent so far this week on weak physical demand, having dropped for three out of the last five weeks. Lackluster investment buying was also reflected in an outflow in gold-backed exchange traded funds (ETFs).

Silver dropped 1.9 percent at $30.05 an ounce. Platinum was down 1.6 percent on the day at $1,531.74 an ounce, while palladium fell 1 percent to $658.97 an ounce.

The palladium market registered its largest surplus in five years in 2011 as sales of Russian stockpiled metal and outflows from exchange-traded funds offset a surge in demand from the auto industry, according to a report on Thursday from metals consultancy Thomson Reuters GFMS.

Additional reporting by Amanda Cooper in London; editing by Jim Marshall

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