Gold near 3-week high after US jobs data triggers short covering

[SINGAPORE] Gold held near a three-week high on Monday, boosted by short covering after strong US nonfarm payrolls data bolstered the case for a Federal Reserve rate hike next week.

With speculators holding record short positions in COMEX gold and the dollar failing to gain much traction post payrolls data, some believe gold prices could see more upside.

US nonfarm payrolls rose 211,000 last month, above market expectations and removing most doubts about the first Fed rate hike in nearly a decade at the central bank's next policy meeting on Dec. 15-16.

Spot gold slipped 0.2 per cent to US$1,084.46 an ounce by 0343 GMT, but held near the US$1,088.70 hit in the previous session, the highest since Nov. 16.

Gold gained 2.3 per cent on Friday after slumping to a near-six-year low earlier in the week.

Typically robust data would have sent gold lower as it would support a rate hike, but investors on Friday chose to cover their shorts. Higher rates tend to weigh on non-interest-paying gold by increasing the opportunity cost of holding it.

"If the dollar is unable to rally we may see further (short) squeezes towards US$1,095-$1,100 in the short term leading into next week's FOMC meeting," said MKS Group trader Sam Laughlin, adding that light profit taking was likely during Asian trade.

Hedge funds and money managers hiked their net short position in COMEX gold futures and options to 17,949 contracts in the week to Dec. 1, according to US Commodity Futures Trading Commission data on Friday.

The dollar index rose 0.8 per cent on Friday, but analysts believe the greenback's reaction to the jobs data was modest with the Fed set to hike rates next week.

Investors' focus has shifted to the pace of the tightening cycle following the initial move.

"Following another solid US labour market report, it is hard to think of anything that will now stand in the way of the Fed hiking next week," ANZ said, commenting on the overall markets.

"While the Fed's decision is shaping as somewhat of a done deal, how the market reacts to a Fed hike still contains an element of uncertainty. The logical reaction may not be what transpires, at least not initially," it said.

REUTERS