NEW YORK ( TheStreet ) -- Gold and silver prices were higher Monday as investors digested Friday's disappointing jobs report in the U.S. and braced for a possible interest rate hike in China. Gold for August delivery was adding $11.80 at $1,554.20 at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,555 and as low as $1,541.60 while the spot gold price was up $10.50, according to Kitco's gold index. Silver prices were rising 86 cents to $37.05 an ounce.
Investors were turning to gold and silver as a safe-haven investments after Friday's dismal U.S. jobs report and as experts debated just how bad this soft patch is. U.S. 2011 growth forecasts, once at 3% to 4%, are now at 2% to 3%. With sentiment negative, gold and silver make attractive investments but lackluster buying indicates that many investors might also be holding cash as they wait for market direction. "The rally in gold again reflects the metal's appeal as a safe-haven/store-of-wealth," says James Moore, research analyst at FastMarkets.com. Gold is "well placed to extend to fresh highs as recent weak U.S. data shifts Fed rate hike expectations further back." Many experts thought the Federal Reserve would raise key interest rates in the second half of 2011, but now expectations are for low rates until 2012. Moore warns, however, of a potential gold selloff as investors, panicked over losses in stocks and other commodities, dump gold for profits especially as gold hits against its record settle of $1,557. Although a rate hike from the Fed might be long coming, expectations are that the European Central Bank will raise rates, currently at 1.25%, at its July meeting especially as the IMF, European Union and ECB step in to help Greece with another bailout. Rate hikes can be bad for gold prices if interest rates start to outpace the inflation rate, which would mean money in the bank is now worth more than gold, which doesn't earn interest. That thesis hasn't capped gold demand in China despite the fact the country has raised interest rates four times since the fourth quarter of 2010 and many are anticipating more aggressive rate hikes soon.
In a recent note, investment bank Goldman Sachs predicted rising inflation in China will trigger more aggressive hikes which will curb free money and therefore growth. "We continue to expect one more 25-bp hike in both deposit and interest rates in the next two months," says the note, which would take the rate to 3.5%, close to its peak level. Gold has been relying on strong demand from China, as well as India, for higher prices. The World Gold Council says that gold demand in China has increased on average 14% per year since 2001 during which time gold prices have risen 470%. So far prices have rallied despite rate hikes in China, up 8.8% for the year, but Standard & Poor's sees more downside on dollar strength. Mark Arbeter, chief technical strategist at S&P, said the dollar index has bottomed and that it could rally up to the $80-$82 level, which would put pressure on gold and silver. "While we think gold has an outside chance to make new highs, we believe prices could fall to the $1,250 - $1,300 region ... Silver is in much worse shape," wrote Arbeter in a recent note. "We think silver could fall all the way to the $20 an ounce are." Gold mining stocks were mixed. Barrick Gold ( ABX) was up 1.22% at $46.39 while Newmont Mining ( NEM) was down 1.21% to $54.09. Other gold stocks, Goldcorp ( GG) and AngloGold Ashanti ( AU) were trading at $49.60 and $44.63, respectively.
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