Gold Slips as the Dollar Rebounds

A stronger-than-expected jobs report and Paulson's comments boost the greenback.
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Gold closed lower Friday after a choppy session, as traders followed a wildly gyrating greenback.

Prices for February-dated bullion contracts closed down $6 at $631 an ounce on the Comex division of the New York Mercantile Exchange. Earlier prices had spiked to an intraday high of $642.80, before quickly reversing mid session after some dollar-boosting comments from Treasury Secretary Henry Paulson.

In a late morning interview on

CNBC

Paulson said a strong dollar was in the best interests of the U.S. economy. Those words, as well as some discussion of trade issues with China, lifted the dollar which had been trading lower earlier in the session on other economic news.

"I was a little bit surprised by how strong the reaction was," says Mark Chandler, a fixed-income strategist at RBC Capital Markets. "But I still think you'll have a

Fed

that will talk about a tightening bias and because of that, the dollar will get short-term support."

The euro was recently buying $1.3201, down from $1.3286 late Thursday. The dollar was gaining on the yen, buying 116.467 yen, up from 115.25 yen previously. Gold tends to move inversely with the dollar.

At 8:30 a.m. EST Friday, the Labor Department reported the U.S. economy added 132,000 jobs in November, beating consensus forecasts of 105,000. October's figures were revised down to 79,000 from 92,000. The national unemployment rate ticked up a little in November to 4.5%, in line with estimates and up from 4.4% in the prior month.

Despite the fair economic report, investors initially seemed to view it as not quite good enough to warrant altering forecasts for a slowdown, cuts in interest rates and subsequent weakness in the greenback. That sparked the intraday dip in the dollar and rally in gold, which lasted until the Paulson comments.

It was anticipation that the Federal Reserve would loosen monetary policy and cut rates that at first sent the greenback lower against the euro Friday, a day after the European Central Bank raised its key lending rate to 3.5%. But then traders reversed direction after Paulson's words.

Even early on, the view that the labor data was not-good-enough was not shared by all. Some economists saw the jobs report signaling sustained strength and the risk of higher inflation on the horizon.

"While there has been a bit of a rise in the unemployment rate, it's been driven by a rise in people looking for jobs rather than by lack of job creation," says Peter Rodriguez, professor of economics at the Darden School of Business in Virginia. He sees continued strength and little data to support a rate cut.

In other economic news, the Economic Cycle Research Institute reports that its Weekly Leading Index jumped 1.8% last week, following a rise of 1.5% in the prior period. It marks the fifth straight week of increases for the indicator and may portend future perkiness in the economy.

The exchange-traded funds, which hold the yellow metal, followed the futures market. Prices for

iShares Comex Gold Trust

(IAU) - Get Report

were recently down by 0.8% and the

streetTRACKS Gold Shares

(GLD) - Get Report

were lower by 0.9%.

Among the miners, the

Amex Gold Bugs Index

was slipping about 2% recently. Component companies

Eldorado Gold

(EGO) - Get Report

and

Meridian Gold

(MDG)

were moving down 1.9% and 2.9%, respectively.

In base metals, March copper contracts closed up a penny at $3.112 a pound on the Comex.

Elsewhere in metals, tin prices were soaring to near 17-year highs,

Bloomberg

reports. Contracts for delivery in three months traded at $10,610 a ton on the London Metal Exchange on Thursday.