Gold slides ahead of U.S. data as euro, commods fall

Fri Jun 1, 2012 7:54am EDT
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By Jan Harvey

LONDON (Reuters) - Gold slipped on Friday, extending losses after posting the biggest May drop in 30 years last month, as investors sold assets seen as higher risk like stocks and commodities on mounting concerns over the financial health of Greece and Spain.

The euro fell to another near two-year low versus the dollar on growing uncertainty about how Spain will recapitalize its ailing banking sector and fix its public finances. This pressured assets sensitive to a stronger dollar, like gold.

Spot gold was down 0.6 percent at $1,553.64 an ounce at 7:37 a.m. EDT (1137 GMT), while U.S. gold futures for August delivery were down $9.00 an ounce at $1,555.20.

Traders are also on edge ahead of U.S. non-farm payrolls data later on Friday, a closely-watched snapshot of the strength of the economic recovery there. The report is expected to show the United States added 150,000 jobs last month.

The dollar could benefit from both a stronger number, which could boost confidence in the stability of the U.S. economy, and a soft report, which would likely prompt a flight to quality. If a weak reading sparks talk of more monetary easing, however, it could be positive for gold. <FRX/>

"The payrolls number today could be important in terms of whether it shows ongoing weakness," Deutsche Bank analyst Michael Lewis said. "If we do see that, that could introduce quantitive easing speculation, but at the moment, Europe and downside risks to the euro are the problem for gold.

"We have had quite a big reduction in speculative length for gold, and we're not seeing any significant outflows from exchange-traded funds," he said. "But dollar strength is going to be the big problem over the next few weeks."

Quantitative easing, which basically translates into printing money, would likely undermine the dollar in the medium term and would help keep real interest rates at rock bottom, both gold-positive moves.   Continued...

Gold bars are displayed at a gold jewellery shop in the northern Indian city of Chandigarh May 8, 2012. REUTERS/Ajay Verma