Currency traders said the dollar, which once benefited from negative data as investors sought less risky assets, gained in response to data indicating economic recovery in the United States was under way.

Spot gold was bid at $957.30 an ounce at 1517 GMT, against $962.15 late in New York on Thursday. US gold futures for December delivery on the COMEX division of the New York Mercantile Exchange were down $2.90 at $959.80.

Tom Hartmann, a gold analyst at Altavest, said gold would likely rise in coming weeks, as the dollar weakened on worries resurfacing about inflation.

‘The dollar is only going to rally if belief about inflation dies down. With an economic recovery or people thinking the recession is slowing down or ending, thoughts of inflation are going to increase,’ he said.

‘The longer term outlook on the dollar is still negative.’

The US non-farm payrolls data showed US employers cut 247,000 jobs in July, fewer than expected. Markets took the news as evidence the economy was turning around.

A weaker dollar often prompts buying of gold as an inflation hedge, and also makes bullion cheaper to holders of other currencies.

Bullion received support from news a group of central banks in Europe had renewed the Central Bank Gold Agreement (CBGA), a pact to limit gold sales for a five-year period to 400 tonnes a year from 500 tonnes.

J.P. Morgan said in a research note it expected sales from CBGA signatories to be limited and not to destabilize the gold market in the medium or long term.

CAR SCRAPPAGE

News that the United States on Friday extended its ‘cash for clunkers’ auto programme, under which people can trade in older cars in return for cash towards purchase of new ones, helped push platinum prices lower.

Palladium and platinum are primarily used by carmakers for catalytic converters.

Spot platinum bid was at $1,254 an ounce against $1,260 late on Thursday. Palladium was at $271.50 against $269.50. Silver was at $14.64 an ounce against $14.54.

‘A correction wasn’t entirely unexpected,’ James Steel, analyst with HSBC Securities, said of the metals strong gains this week. ‘At least an element of the pullback is related to an extension of the cash for clunkers.’

He said many of the models being traded in had a much higher platinum component than new cars, and that the increased amount of scrap was depressing primary prices.

For more on the affect of the auto industry on platinum prices see

Platinum was also weighed down by news South Africa’s biggest union and state power firm Eskom voiced hopes ahead of talks on Friday that a strike will be averted.

South Africa is by far the largest source of platinum globally. Talk of a strike took platinum and palladium prices to multi-month highs earlier in the week.

‘Our general view was that strikes to the extent power will be disrupted are highly unlikely,’ said Standard Bank analyst Walter de Wet.