SINGAPORE: A 4 percent rally for gold on Friday on weak U.S. jobs data could signal a return to the safe haven status that has eluded bullion for the past seven to eight months.
The dollar, U.S. Treasuries and German Bunds have been the safe havens of choice in recent months, while gold has moved in tandem with riskier assets that are under increasing pressure from the euro zone crisis.
But the Friday move, the biggest daily percentage gain for gold in more than three years, was in sharp contrast to the falls in oil and the S&P 500 index.
Gold in particular would benefit if the darkening economic outlook pushes central banks to embark on further monetary stimulus.
"It boils down to the question of whether you expect QE3 (a third round of quantitative easing) to happen and if you think the world economy needs stimulus to keep afloat," said Dominic Schnider, an analyst at UBS Wealth Management in Singapore.
"If the answer is yes, buy gold now because it is going to be the first metal to respond."
A Reuters poll among 15 primary dealers -- the large financial institutions that do business directly with the Fed --forecast a 50 percent chance of another round of monetary easing, up from 33 percent in early May.
"Gold's attraction increased after Friday's poor US payroll number came out, reviving expectations that the Fed could now join the ECB and launch another massive easing program," said analyst Ed Meir from INTL FCStone.
A weaker dollar helped gold hit a record high above $1,920 an ounce in September, but bullion prices have fallen 16 percent since then to around $1,620 on Tuesday, moving in line with assets generally considered risky.
After Greece failed to form a government following an inconclusive election in early May, worries about a potential Greek exit from the euro zone sent the S&P 500 index down by 6.3 percent, commodities more than 10 percent and spot gold 6.3 percent in the month. The dollar index jumped 5.4 percent.
Gold's performance vs. dollar, US Treasuries, commodities
BONDS VS. GOLD
U.S. Treasuries and German Bunds saw their yields fall to historic lows last week after weak U.S. job market data sent shockwaves across financial markets and drove investors to safety.
"I think the value in the bond market has disappeared, and this is creating less appetite for bonds and more for other assets," said Robert Lutts, chief investment officer of Cabot Money Management, a wealth manager in Salem, Massachusetts with over $500 million in client assets.
For gold to attract more safe haven flow, investors need to see signals of plans to tackle the crisis, said Nick Trevethan, senior metals strategist at ANZ in Singapore.
"People want top-tier safety products when they don't know what's going on. When they have a better idea, are still uncomfortable about what's happening but at least have a direction, things like gold will probably flash up on their radars."