Gold rises on Central banks offer to buy

London: Gold rose on Friday, boosted by the prospect of central banks buying the precious metal to diversify their reserves and after unexpectedly high unemployment figures reported by the US government.
Spot gold extended gains to hit a record high at $1,100.90 per ounce yesterday. By 1448 GMT, spot gold stood at $1,098.40 per ounce, compared with $1,089.55 quoted late in New York on Thursday.
The trigger for the latest surge was news earlier last week that the International Monetary Fund had sold 200 tonnes of gold to the Reserve Bank of India for $6.7 billion (Dh24.6 billion).
US non-farm payrolls for October showed a fall of 190,000 compared with a drop of 263,000 in September, and the unemployment rate for the first time reached mor than ten pre cent.
"Now that the unemployment rate breached the psychological 10 per cent level the dollar will come under pressure," a trader said.
A weaker US currency dollar makes commodities cheaper for holders of other currencies, while gold is often used by investors as an alternative to the dollar. Gold rallied $25 on Tuesday, largely driven India's purchase of gold from the IMF, which soothed investor nerves about possible oversupply. But it surprised the market, which had expected China to be the most likely buyer.
"Most central banks outside of the US and Europe have low gold reserve ratios," Calyon said in a note. "Those central banks with low reserve ratios and are keen to diversify into gold, notably those located in Asia, will be potential candidates to buy the remainder of the IMF's 203.3 tonnes of gold."
The high chances of Asian central bank gold purchases were reinforced by Sri Lanka, which said on Thursday it had been buying gold for the last five or six months. Linked in with this is the dollar, which central banks will sell when they switch to gold from US Treasuries.
However, some think Asian central banks may not hurry to follow India's lead given current record prices and the availability of cheaper domestically produced gold. The central bank story has offset some selling by investors as seen in the world's largest gold-backed exchange-traded fund, SPDR Gold Trust. SPDR's holdings fell 0.055 tonnes to 1,108.344 tonnes on Thursday, marking the first decline since October 30