Gold resumed its rally on Friday as an unexpectedly upbeat U.S. payrolls report and glimmers of hope for an end to the euro zone debt crisis failed to entice investors back toward riskier assets.
Gold was briefly hit on Thursday with a bout of liquidation by traders scrambling to raise cash to meet margin calls in battered stock markets, but by Friday it had found its footing again as investors bet that nothing short of further government intervention would stave off deepening woes.
The possibility of more Japanese yen intervention, European bond buying and even a third round of U.S. quantitative easing left investors with few options besides gold, some traders said. Bullion is up 12 percent after five weeks of gains.
"They just don't know what the next shoe to drop is," said Bruce Dunn, vice president of trading at bullion dealer Auramet. "Other than piling into the Swiss franc, yen and Treasuries, there is really nothing else to invest, so that's why everybody is piling into gold."
Spot gold was up 0.8 percent at $1,661.09 an ounce by 3:55 PM EDT, after it hit a record high of $1,681.67 early on Thursday.
U.S. December gold futures settled down $7.20 at $1,651.80 an ounce. Futures volume topped 200,000 lots for a third straight day as investors sought safe havens.
Data released by the U.S. Commodity Futures Trading Commission showed managed money in gold futures and options raised their net length to a five-year high in the week up to August 2.
Silver fell 1.6 percent to $38.20 an ounce.
Gold benefited from a surge in volatility among U.S. stocks Friday. The S&P lost 10 percent in the last 10 sessions on intense fears the U.S. and euro zone economy are tipping back into recession. .N
The inverse 25-day correlation log coefficient between gold and the S&P 500 tightened to a 0.7, its strongest level in eight years.
Bullion firmed after sources close to the matter told Reuters the European Central Bank is ready to buy Italian and Spanish bonds if key structural reforms are brought forward by Italian Prime Minister Silvio Berlusconi.
The news came a day after the ECB resumed buying government bonds, marking a fresh round of central bank money easing.
Independent investor Dennis Gartman, however, said a bearish technical reversal and market preference for cash over riskier assets had prompted him to cut his gold positions by half.
RECESSION FEARS REMAIN, FOMC EYED
Gold mostly held in positive territory even after U.S. government data showed the economy generated 117,000 jobs last month and unemployment fell to 9.1 percent. However, the dip in the jobless rate reflected more of a contraction in the size of the work force than an improved employment picture.
The employment data eased pressure on the U.S. Federal Reserve to take new action to boost growth after a string of lackluster economic data this week.
"Gold is reacting to a gloomy economic outlook and the expected responses by governments, as it is very plausible to expect that governments will keep printing paper money," said James Dailey, portfolio manager of TEAM Financial Asset Management, which oversees $200 million in assets.
Platinum was down 0.2 percent at $1,714.49 an ounce, and palladium inched down 0.4 percent to $738.18 an ounce.
3:55 PM EDT LAST/ NET PCT LOW HIGH CURRENT
SETTLE CHNG CHNG VOL US Gold DEC 1651.80 -7.20 -0.4 1644.20 1673.00 193,788 US Silver SEP 38.211 -1.220 -3.1 37.555 39.870 83,008 US Plat OCT 1719.10 -10.30 -0.6 1682.00 1727.50 12,248 US Pall SEP 741.75 -11.20 -1.5 722.15 754.00 7,838
Gold 1661.09 13.19 0.8 1643.01 1669.60 Silver 38.200 -0.610 -1.6 37.560 39.790 Platinum 1714.49 -3.31 -0.2 1684.00 1726.00 Palladium 738.18 -3.00 -0.4 725.58 751.00
TOTAL MARKET VOLUME 30-D ATM VOLATILITY
CURRENT 30D AVG 250D AVG CURRENT CHG US Gold 215,898 203,893 179,154 21 0.09 US Silver 97,655 71,775 60,049 46.22 5.34 US Platinum 12,347 6,578 7,181 22 2.00 US Palladium 8,140 3,499 3,736
(Reporting by Frank Tang; Editing by Dale Hudson and Alden Bentley)