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Gold at 11 Month High Ahead of Key U.S. Jobs Report

October 6, 2012 - Gold reached a high not seen since last November in trading on Friday, drawing some steam from euro strength following the European Central Bank’s restatement of a preparedness to assist indebted nations as looking toward a key U.S. employment report due out Friday for more direction.

The ECB kept interest rate levels unchanged following their meeting on Thursday and announced that it would buy more government bonds from debt-strapped Euro zone members to hold off the persistent risk to growth.

Having breached the $1,795 per troy ounce level earlier in trading on Friday, the spot price of gold gained 0.1 percent to $1,789.29 per troy ounce. The yellow metal took a course to log its strongest weekly gain since mid-September.

The key U.S. jobs report, an indication to the Federal Reserve’s stance on monetary policy, showed a drop in the unemployment rate to 7.8 percent, the first time the level of unemployment in the U.S. has been below 8 percent since President Obama took office. Stocks responded with a strong rally and the price of gold experienced an initial drop of over $10 per troy ounce from above the $1,790 level to resistance at $1,780 before reaching the $1,775 level of resistance in late trading.

David Govett, head of precious metals at Marex Spectron, said the general consensus is that gold will break the psychologically key $1,800 level and if it can close above there, it will move towards $1,850. The U.S. non-farm payrolls report for September is heavily anticipated for an indication of whether the Federal Reserve’s third round of quantitative easing will have the intended effect on the labor market.

A poll conducted by Reuters indicated that the report will show 113,000 workers were added to payrolls in September, an addition on the 96,000 added during the last month. Private employment data, released on Wednesday and considered encouraging by analysts, has not been sufficient to change views that the Fed will maintain low interest rates until there are signs of substantive economic growth. Ronald Leung, a dealer at Lee Cheong Gold Dealers in Hong Kong, said that there doesn’t seem to be anything else they can do besides pumping more money into the economy, as quoted by Reuters. India, the world’s largest buyer of bullion, has shown an increase in physical buying as an appreciation in the rupee has seen domestic prices for gold reach a five- week low. Exchange-traded funds backed by physical gold increased holdings of the precious metal, adding another 418,611 ounces on October 4.

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Jonathan Monroe

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