Gold rises towards $1,420 ahead of U.S. payrolls ?

(Reuters) - Make Money Blog - Gold firmed in Europe on Friday, recovering some of the previous session's hefty losses as unrest in North Africa supported demand for the metal as a haven from risk, though moves were muted ahead of key U.S. payrolls data.

Spot gold was bid at $1,418.55 an ounce at 1046 GMT, against $1,415.59 late in New York on Thursday. U.S. gold futures for April delivery rose $2.50 to $1,418.90. Gold fixed at $1,418.00 an ounce at 1030 GMT.

The payrolls report, due at 1330 GMT, is likely to show that U.S. non-farm payrolls soared in February after being held down by extreme winter weather in the previous month. Employment is expected to have increased by 185,000.

"U.S. nonfarm payrolls data is expected to show a strong increase in new jobs and this will place the United States back on the growth phase, at least (in) the labor market," said Pradeep Unni, senior manager at Richcomm Global Services.

"Bullion may drop due to the strength in dollar, but high oil prices and current tensions in Middle East are two factors that are probably curbing... an aggressive drop."

The metal hit a record $1,440.10 an ounce on Wednesday as violence flared in Libya after weeks of unrest across the Middle East region, but fell the following day as the European Central Bank hinted interest rates may rise as early as next month.

Low interest rates have been a major driver of gold prices in recent years, as they reduce the opportunity cost of holding non-yielding gold.

"However, prices should be supported by the weakening of the U.S. dollar versus the euro expected to result from (a rise in euro zone rates), as the U.S. Fed is still not making any moves to tighten its monetary policy," Commerzbank said in a note.

source:reuters.com

Gold's fall has been arrested as violence raged in North Africa as troops loyal to Libyan leader Muammar Gaddafi fought rebel forces. Libyan rebels came under attack by a warplane for a third day on Friday as Gaddafi tried to loosen their grip on a key coast road.

VOLATILE

Protests across the region pushed gold up 6 percent last month on fears violence would spread. While the situation remains volatile, gold is unlikely to correct significantly.

As well as benefiting from the turmoil in its own right as a safe store of value, gold has also ridden higher on oil's coat-tails, after crude prices surged to 2-1/2 year highs above $100 a barrel last week.

Gold is sometimes seen as a hedge against oil-led inflation. Even if oil prices correct, inflation will remain a worry, analysts said.

"The recent increase in inflation concerns, particularly in emerging markets, goes beyond the oil market and the current events in the Middle East and North Africa," said Bank of America-Merrill Lynch.

"The response of key central banks to rising inflation expectations will ultimately determine whether gold continues to track oil over the next few months," it added.

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