Enlarge imageBy Pratima Desai and Veronica Brown
LONDON (Reuters) - Gold surged to a record high above $1,100 per ounce on Friday as investors pounced on the metal in volatile trade after data showed U.S. employers cut a bigger-than-expected 190,000 jobs in October.
Dealers also said the market continued to find residual support from the prospect of central bank buying of gold to diversify their reserves.
"The market has the bit between their teeth -- all these investors have piled into gold in a quasi-physical sense and now they are being supported in that by the actions of Mr Central Bank," said RBS metals analyst Stephen Briggs.
The precious metal hit a record high at $1,100.90 per ounce earlier, having gained more than 25 percent this year.
Advertisement starts
Advertisement ends
By 3:14 p.m., it was bid at $1,097 a troy ounce from $1,089.55 late in New York on Thursday.
The trigger for the surge this week was news that the International Monetary Fund had sold 200 tonnes of gold to the Reserve Bank of India for $6.7 billion (4 billion pounds).
"People are focussing on pent up demand for gold from central banks in emerging markets," said Michael Lewis, head of commodities research at Deutsche Bank.
"The central bank community for the first time in 20 years is possibly going to be a net buyer of gold having been a net seller since 1988 ... Today the market will also focus on the U.S. jobs data and how the dollar reacts."
WEAK JOBS DATA
Data released earlier showed the U.S. unemployment rate rose to 10.2 percent, the highest in 26-1/2 years, as employers shed 190,000 in nonfarm payrolls in October.
The dollar initially rose as investors were at first risk averse after the numbers, but as U.S. stock market indexes turned positive the greenback fell against the euro and a basket of currencies.
A weaker U.S. 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 by India's purchase of gold from the IMF, which soothed investor nerves about possible oversupply.
"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 in an off-market purchase."
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 U.S. 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.
"Indian buying was very significant, but those getting excited about the potential for copy cat moves need to consider a number of factors," said David Thurtell, analyst at Citi.
"Culturally, India is more favourably disposed to gold than every other country. Second, it might be politically dangerous to be accumulating reserves at the all-time price high."
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.
Silver was bid at $17.48 from $17.37 late on Thursday, platinum at $1,349 from $1,353.50 and palladium at $329.50 from $328.50.
(Editing by Sue Thomas)
