* Risk appetite improves but inflation fears return to fore
* U.S. non-farm payrolls data expected to give direction
(Updates throughout, changes dateline - pvs TOKYO)
By Jan Harvey
LONDON, May 8 (Reuters) - Gold climbed in Europe on Friday
as fears over the prospect of rising inflation fuelled buying of
the metal as a hedge, but trading was muted ahead of U.S.
payrolls data.
The precious metal ignored gains in equity markets, which
have tended in recent months to signal a lower gold price, as
the metal's safe-haven appeal took a back seat to its status as
a hedge against rising prices.
Spot gold <XAU=> was bid at $916.25 an ounce at 0927 GMT,
against $909.05 an ounce late in New York on Thursday.
"The inflation theme is coming back into the gold market,"
said Deutsche Bank trader Michael Blumenroth. "There is not so
much safe-haven buying into the gold market, but on the other
hand... inflation expectations are coming back."
While data shows little inflationary pressure at present,
analysts say heavy interest rate cuts and the scope of
quantitative easing measures could cause inflation to surge when
the global economy recovers.
The European Central Bank said on Thursday it was cutting
key interest rates to 1 percent, while the Bank of England
announced it was expanding its asset purchase programme.
A spate of better-than-expected economic data from around
the world also fuelled hopes for a recovery.
The dollar slipped a touch against the euro ahead of a U.S.
non-farm payrolls report due at 1230 GMT, as expectations the
pace of job losses in the U.S. economy may be slowing prompted
some traders to take on more risky positions. []
European shares also climbed in early trade as financial
stocks advanced, with traders relieved that stress tests on U.S.
banks had revealed no nasty surprises. []
INVESTMENT
Fresh demand for gold products such as exchange-traded funds
remains scarce. The world's largest gold ETF, the SPDR Gold
Trust <GLD>, said its holdings were unchanged on Thursday from
the previous session at 1,104.09 tonnes.
Silver edged up along with gold, though it remained below a
10-week high of $14.13 an ounce hit on Thursday as investment
was boosted by gains in both industrial and precious metals.
Silver <XAG=> was bid at $13.95 an ounce against $13.78.
The gold-silver ratio, a key measure of the white metal's
value, has slipped to just over 65 from around 71 a month ago.
"The market has now started to outperform relative to both
gold and the precious metals complex as a whole," said Standard
Chartered in a note. "The closure of two silver mines in Mexico
due to the swine flu outbreak helped to boost sentiment."
However, the metal is less well-placed than gold to benefit
from investment flows, it added. The bank sees silver prices at
$12.60 an ounce in the third quarter of 2009 and $12.70 in the
fourth.
Among other precious metals, spot platinum <XPT=> was bid at
$1,151 an ounce against $1,144, while spot palladium <XPD=> was
bid at $240 an ounce against $237.
London-based ETF Securities said its platinum-backed
exchange-traded fund recorded an outflow of just over 12,000
ounces on Thursday, or 3.6 percent of its total holdings. ETF
buying has been a key factor supporting precious metals demand.
(Reporting by Jan Harvey; Editing by William Hardy)
