LONDON (Thomson Financial) - Gold hit a day high after U.S. non farm payrolls data re-ignited fears of recession and battered the dollar but bullion failed to rally as the dollar later recovered.
The U.S. dollar's knee jerk reaction was to fall sharply after dismal U.S. jobs data pointed to recessionary conditions in the economy and raised the prospects of further cuts in interest rates by the Federal Reserve.
Players are now assessing the likelihood of another U.S. interest rate cut that would most likely weaken the dollar further and boost gold prices.
'Participants will weigh the odds of an end of April Fed rate cut against the demand contraction implications of a US economy,' said Kitco analyst Jon Nadler.
The payroll figures, which are closely monitored by the market, showed the economy lost 80,000 jobs in March, well below expectations for a much smaller drop of 50,000 and the biggest drop in five years.
This is the third consecutive month that the U.S. economy has shed jobs, the first time this has happened since June 2003, causing the unemployment rate to jump to 5.1 percent from 4.8 percent in February.
But, Martin Slaney, head of spread betting at GFT Global markets said: 'The market was braced for bad news and seems to be holding up well.
'This certainly ups the odds of another fifty basis point cut at the next Fed meeting so that is providing us with some support. The key issue will be whether we start to see the cuts in the Fed Funds rate filter through to the interbank money markets; until it does the tightness in credit will remain.'
At 2.11 p.m., spot gold was trading at $905.00 an ounce against $905.30 in late New York trades yesterday.
Looking ahead, players will track dollar's movements and use any key economic data to weigh the gravity of the credit crisis.
Gold moves in the opposite direction to the dollar as it is seen as an alternative asset. Bullion also trades counter to crumbling equity markets, pressured by economic weakness, as it is seen as a safe store of value.
'Gold prices were buoyed by investor interest and this is likely to remain the key price determinant this year,' said Barclays (nyse: BCS - news - people ) Capital analysts. 'External factors such as inflationary and broader economic concerns, geopolitical tensions and Fed rate easing are likely to drive prices to retest $1000/oz,' said Barclays Capital analysts.
In other precious metals, silver was trading up at $17.43 an ounce against $17.41 in late New York trades Thursday.
Platinum was higher at $1,989 an ounce against $1,987, while its sister metal palladium was at $433 an ounce against $437.
anealla.safdar@thomson.com
