* Data shows U.S. payrolls fell 131,000 in July
* Dollar-gold relationship tentatively returns to normal
* SPDR gold ETF rises; iShares silver ETF sees 30-T outflow
(Updates prices)
By Jan Harvey
LONDON, Aug 6 (Reuters) - Gold prices rose more than 1
percent to their highest in three weeks on Friday after data
showing U.S. payrolls fell for a second straight month knocked
the dollar.
Spot gold <XAU=> rose as high as $1,210.85 an ounce, its
strongest since July 15, and was at $1,206.95 an ounce at 1502
GMT, against $1,193.10 late in New York on Thursday. U.S. gold
futures for December delivery <GCZ0> rose $9.90 to $1,209.20.
The Labor Department said non-farm payrolls dropped 131,000
last month, roughly double the 65,000 fall expected. Private
employment, considered a better gauge of labour market health,
rose by a smaller than expected 71,000.
Ole Hansen, senior manager at Saxo Bank, said the data had
proved "a bad report that could bring forward additional
monetary expansion, which can be dollar negative and therefore
supportive for gold."
"It will give investors additional excuses to re-enter gold
after the sell-off was rejected ahead of the 100-day moving
average," he added.
The U.S. dollar approached a 15-year low against the yen and
fell against the euro in the wake of the data. On the wider
markets, U.S. stocks fell sharply in early trade and European
shares wilted. [] [] []
Traditionally, gold and the dollar trade inversely, with
weakness in the U.S. unit lifting gold's appeal as an
alternative asset and making dollar-priced commodities cheaper
for holders of other currencies.
That relationship broke down earlier this year as both gold
and the dollar benefited from risk aversion, but appears to be
being re-established.
"We saw that negative correlation shift to a positive
correlation between the dollar and gold since January, up until
the last few weeks," said RBS analyst Daniel Major.
"Gold is going to fall back more into its traditional
relationship with the dollar," he said.
A Federal Reserve policy meeting next week is now in focus,
as a spate of weak economic data has strengthened the argument
the Fed may have to take further steps to boost the economy.
ON TRACK FOR GAINS
Gold is on track to post its first weekly gain in four
weeks, and its biggest such rise since the week to June 20. In
addition to dollar weakness, prices have benefited from China's
decision to open up its gold trade. []
China is a key player in a number of commodity markets, but
although it is the biggest producer and the second biggest
consumer of gold, its trade has typically been largely domestic.
"We believe greater availability of physical gold and gold
related financial products and improved accessibility for
international players will likely increase the trading volume on
the Shanghai gold exchange," said Deutsche Bank in a note.
"Indeed, since the SGE began physical gold trading for
individuals in 2006, trading volume has increased fourfold," it
added. "As a result, we believe China will play an increasingly
important role in the global gold market."
Physical gold demand remained firm in India, with a stronger
rupee cushioning local buyers from the impact of rising dollar
prices. Buying is expected to continue ahead of a festival
season starting with Raksha Bandhan on Aug. 24 and continuing
until Dhanteras in November. []
Recent outflows from gold exchange-traded funds also seemed
to have stalled on Thursday, with holdings of the largest, New
York's SPDR Gold Trust <GLD>, rising for the first time since
mid-July. []
Silver <XAG=> rose in line with gold to $18.43 versus
$18.31. Data showed holdings of the world's largest silver ETF,
the iShares Silver Trust <SLV>, fell more than 30 tonnes to
9,151.03 tonnes on Thursday. []
Platinum <XPT=> was at $1,566 an ounce against $1,566.75 and
palladium <XPD=> at $489.50 versus $492.20.
(Editing by James Jukwey)
