Commodities Rebound as Dollar Dips

The weak jobs report relieves fear of the Fed while tension with Iran brings buyers back to oil and the metals.
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Updated from 11:32 a.m. EDT

Gold and metals bounced back on Friday, supported by rising oil prices and a slide in the dollar following subpar growth in U.S. employment.

Gold, which acts as both a hedge against inflation and a safe haven asset, received an early lift as crude rose. Gold's surge to a 26-year high of $730 an ounce last month was helped by oil nearing $75 a barrel as tensions mounted with Iran, the world's fourth-largest producer of crude.

On Friday, crude oil was recently up $1.51 at $71.85 a barrel after Iranian president Mahmoud Ahmadinejad said Tehran will not abandon nuclear research under Western pressure. The declaration comes after six world powers issued new proposals aimed at convincing Tehran to stop nuclear enrichment.

Gold for August delivery gained $7.70, or 1.2%, to close at $641 an ounce, after sliding 2.4% on Thursday. Silver for July delivery rose 18 cents, or 1.5%, to $12.08, following Thursday's 4.4% drop.

Commodities and global financial markets have been rocked in recent weeks amid concerns that central banks are lifting interest rates to curb growth and inflation pressures, notably from soaring commodities prices.

But on Friday, at least, markets were hoping to see the light at the end of the tunnel of the

Federal Reserve's

24-month-long campaign to raise interest rates.

The Labor Department said the U.S. economy added 75,000 jobs in May, roughly 100,000 fewer than economists were expecting on average. Average hourly earnings, monitored by the Fed as a wage-inflation gauge, rose a smaller-than-expected 0.1%, compared with a 0.6% gain in April.

Weakening growth, in and of itself, wouldn't be a positive factor for commodities, (especially those with a common industrial use) as demand would likely slacken off.

But for precious metals, at least, the bet has been on a weakening dollar. A weaker greenback boosts the price of dollar-denominated commodities, such as gold, as it takes more of the currency to buy the same amount of gold.

Following Friday's weak jobs report, the Dollar Index, which tracks the greenback against a basket of key currencies, was recently down 0.8%.

Gold, in particular, has benefitted from expectations that the dollar will resume a multiyear decline once the Fed stops raising interest rates. These expectations were frustrated in recent weeks, amid stronger-than-expected inflation data and hawkish comments from Fed officials.

On Wednesday, Wall Street again lifted its expectations of a June rate hike after the Fed released the minutes of its May 10 meeting, at which it lifted its key rate by 25 basis points to 5.0%. Fed members, the minutes revealed, considered everything from a pause to a 50-basis-point hike.

On Thursday, the market was pricing in 75% odds the Fed would hike again in June, taking the fed funds rate to 5.25%. Should the Fed pause in June, odds that it would hike in August stood at 100%, according to Miller Tabak.

But following the release of Friday's jobs report, those odds dropped to 44% and 68%, respectively.

"Pressure on the Fed has been building as inflation is accelerating," writes Joel Naroff, president of Naroff Economic Advisors. "But

some Fed members have been arguing that

inflation is a lagging indicator and they believe that the economy should slow," he says. "Guess what? That may already be happening."

A slowing economy, however, may not spell good news for copper, which led a

metals meltdown on Thursday, amid concerns over slowing global growth, talk of Chinese selling and a firmer dollar.

Yet even the base metal advanced on Friday. Copper for July delivery finished up 11 cents at $3.58 a pound, after slumping 4% Thursday.

The base metal rose for the first time in four trading sessions after workers went on strike at the

Grupo Mexico

Cananea mine, the largest copper mine in Mexico. Other workers at Grupo Mexico's La Caridad mine already went on strike mroe than a month ago.

Among copper producers,

Freeport McMoRan

(FCX) - Get Report

was up 1.8% and

BHP Billiton

(BHP) - Get Report

was down 0.05%.

Overall, shares of metals miners were rising in recent action. The Philadelphia Gold and Silver index was recently up 1.4%, the Amex Gold Bugs index was up 1.8% and the CBOE Gold index was up 1.3%.

Among the biggest gainers,

Randgold

(GOLD) - Get Report

was up 3.5%,

Meridian Gold

(MDG)

was up 3.6%, and

IamGold

(IAG) - Get Report

was up 3.4%.

Meanwhile, some miners with stakes in Peru, South America's largest gold producer, will be following closely the country's presidential elections on Sunday. The final electoral round pits centre-left candidate Alan Garcia against nationalist Ollanta Humala, who says he is for the nationalization of Peru's assets, including mines.

Recent polls show garcia 10 points ahead of Humala, according to the Associated Press.

Among major players in Peru,

Newmont Mining

(NEM) - Get Report

was up 2.8%,

Barrick Gold

(ABX)

was up 0.2%, and

Phelps Dodge

(PD) - Get Report

was up 1.9%.

The newly launched

Market Vectors-Gold Miners

(GDX) - Get Report

exchange-traded fund, which tracks the performance of the Amex Gold Miners Index, was up 0.8%.

ETFs tracking the metals themselves also were rising. The

iShares Silver Trust

(SLV) - Get Report

was up 0.7%, and the

StreetTRACKS Gold Trust

(GLD) - Get Report

was up 1.4%.