Gold firms on weak dollar, soft US jobs data

SINGAPORE: Gold strengthened on Monday, extending gains made in the previous session, as a disappointing US jobs data fuelled fears of a slowdown in recovery of the world's biggest economy and a softer dollar lent support.

US employers hired the fewest number of workers in eight months in May and unemployment rate rose to 9.1 percent, stoking worries that the economic growth may be faltering, supporting sentiment in gold which is seen as a safe-haven investment during economic uncertainties.

"The weak US data has increased the possibility of a third round of quantitative easing," said Ong Yi Ling, an analyst at Phillip Futures.

"I think it is premature to say we will see a third round. But if the Fed (US Federal Reserve) signals that there may be, it will be the catalyst pushing gold to $1,550 and beyond."

Spot gold edged up 0.2 percent to $1,545.35 an ounce by 0330 GMT, building on three consecutive weeks of gains.

US gold gained 0.3 percent to $1,546.70.

When the Fed announced the second round of quantitative easing, known as the QE2, in November last year, gold prices scored record highs for four consecutive sessions.

Before any clear clue on further quantitative easing, gold is likely to be trapped in the range between $1,520 to $1,550, traders said.

Technical analysis echoed such view. Spot gold faced resistance at $1,553 an ounce, said Reuters market analyst Wang Tao.

The US dollar slid to a fresh one-month low against a basket of major currencies on Monday, finding no support after the disappointing jobs data bolstered expectations that US interest rates will stay low for longer.

The weakness in the dollar is likely to buoy prices of commodities, as a soft dollar makes commodities cheaper for holders of other currencies.

Investors also continued to watch the ongoing Greek debt crisis for trading cues. International lenders said on Friday that the country was likely to get a vital slice of aid in July to avoid default while the European Union raised the prospect of expanding the bailout of the euro zone state.

Spot silver rose 1.4 percent to $36.71, after dropping to a 1-1/2 week low of $35.13 in the previous session.

"There is some short-covering in silver," said a Hong Kong-based dealer, "Investors still view silver as a good investment."

Money managers raised their bullish bets in gold and silver last week, as prices recovered from heavy losses incurred during the first two weeks of May, US regulator data showed Friday.

But holdings in the iShares Silver Trust, the world's largest silver-backed exchange-traded fund, dropped to an eight-month low of 9,885.4 tonnes by June 3.

Copyright Reuters, 2011