Gold slips, fresh demand low

[] — GOLD prices slipped on Friday after US non-farm payrolls fell less than expected in April and investors took signs of an economic recovery as a reason to sell bullion held as a safe store of value.

Losses were limited, however, as the dollar weakened and concern that an economic recovery could spark inflation supported buying of the metal as a hedge against rising prices.

Spot gold traded at $914.25 an ounce at 7:35 pm GMT, up 0.6 percent from its late Thursday quote of $909.05 in New York.

US gold futures for June delivery settled down 60 cents at $914.90 an ounce on the COMEX division of the New York Mercantile Exchange.

“Gold is stuck between the people who want to buy it as an inflation hedge and those who want to sell out because they think the world is becoming a better place,” said Saxo Bank senior manager Ole Hansen.

The dollar slipped to a six-week low against the euro after data showed the United States shed fewer jobs than expected last month, slowing safe-haven flows into the US currency.

Employers cut only 539,000 jobs in April, the smallest number since October and fewer than the 590,000 losses predicted by analysts polled by Reuters.

Wall Street climbed two percent on Friday after the data, and as the results of the government’s stress tests on US banks lifted uncertainty over the health of the financial sector.

While gold’s appeal as a haven is decreasing, it continues to be supported by inflation expectations, analysts said.

“The inflation theme is coming back into the gold market,” said Deutsche Bank trader Michael Blumenroth. “There is not so much safe-haven buying into the gold market, but, on the other hand … inflation expectations are coming back.”

While data shows little inflationary pressure at present, analysts say heavy interest rate cuts and quantitative easing could cause inflation to surge when the global economy recovers, underpinning gold.

The European Central Bank said on Thursday it was cutting key interest rates to 1 percent, while the Bank of England announced it was expanding its asset purchase program.

“The general question is: If this engine restarts, can the liquidity be pulled out, or will it drain without stopping again,” Frank McGhee, head precious metals trader at Integrated Brokerage Services, said, referring to economic stimulus packages.

Shifting investment flow

Fresh demand for gold products, such as exchange-traded funds, remains scarce. The world’s largest gold ETF, the SPDR Gold Trust, said its holdings were unchanged on Thursday from the previous session at 1,104.09 tonnes.

Barclays Capital said in a note investor interest in commodities had shifted away from precious metals towards energy in the second quarter.

Precious metals had an inflow of $12.5bn in the first three months of 2009, but an outflow of about $500m so far in the second quarter.

Silver edged up along with gold, though it remained below a 10-week high of $14.13 an ounce hit on Thursday as investment was boosted by gains in both industrial and precious metals.

Silver was at $13.97 an ounce, up 1.4 percent from its previous finish of $13.78.

The gold-silver ratio, a key measure of silver’s value, has slipped to just above 65 from around 71 a month ago.

Among other precious metals, spot platinum was at $1,145 an ounce, down 0.1 percent from its late Thursday quote of $1,144, while spot palladium was at $240 an ounce, up 1.3 percent from its previous finish of $237.