ForexSpace - Trader nerves about the impending release of US non-farm payrolls data has set gold on a course for its biggest weekly drop in a month. A cloud of malaise has gathered over the US as negative data has continued to emerge in recent weeks, driving the cost of the yellow brick down to its current low at $1.60 an ounce to $1, 634.60 by 06.18 GMT. Thursday saw the lowest gold prices since April 25, $1630.70.

The jobs data - due for release Friday afternoon - is causing anxious traders and investors to hang by the sidelines in anticipation of a weaker-than-expected data which could revive hopes of a third round of Fed easing, boosting gold’s safe-haven appeal. According to Reuters analysts, the payrolls report is expected to show a gain of 170, 000 jobs in April, while job growth is anticipated to deliver poorly following a number of weak US indicators.

"Whether or not the data is going to be bad, the market is still in a range trade. The upside is a bit limited for a little while. Nobody wants to enter the market”, said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong. “We have to see physical buying coming back before gold can stabilise. Otherwise, we can test $1,625 again. We don't know when the Indians will come back."

Leung refers to the effect of a weak rupee having made dollar-priced gold very expensive for the world’s largest buyer of bullion, India. And with jewellers well-stocked after the celebration of Akshaya Tritiya (April 24), demand has subsided over recent weeks.

Dollar holds

While gold makes market moves ahead of the release, the USD has held steady against its major counterparts EUR and JPY. Top forex broker and analyst suggestions are that a weak report is likely to put the dollar under increased pressure, driving it lower as a result of a vicious cycle of QE speculation and anticipatory “pricing in”.

The dollar held steady versus the yen at 80.18 yen, staying above a 10-week low of 79.64 yen hit on Tuesday on trading platform EBS. “Market reaction to today’s report should be conventional,” said Sue Trinh (pictured), currency strategist at RBC Capital Markets. By that, Trinh expects that weaker data should trigger expectations for more quantitative easing from the Federal Reserve and send the dollar lower. “Nonetheless, the dollar/yen remains the safer, less ambiguous, play on U.S. data surprises,” she said.

Euro eyes US until it takes the fore

The euro was also little changed at the time of writing ($1.3150), rising from Thursday’s two-week low which came because of speculation over the ECB conference to announce interest rates. With rates held and a relatively uneventful Spanish bond auction which saw yields rise slightly but solid domestic buying, trader focus has now switched to the US.    

But the US jobs data is not the only event looming for markets to consider, the results of French and Greek elections will be announced Sunday. With thousands of disgruntled Europeans having cast votes from within their austerity-hit nations, there are likely to be some surprises in store. The French frontrunner, Hollande, promises to shift political focus to growth stimulation to growth if elected. An attractive prospect for beleaguered citizens, but it is adverse attitude to austerity (and Brussels) which has Brussels which has already unnerved some economists.

"If Hollande attempts a more growth-oriented policy approach - as his campaign suggests - that will interrupt the mostly unified political consensus that austerity policies are the way out of Europe's crisis," Gothard said.

"It remains to be seen how that kind of policy confusion would be received by markets," he added.

Meanwhile in Greece, the likelihood of a more complicated political outcome to the election is on the cards. The country’s two main parties supporting a bailout scheme - New Democracy and Pasok - struggling to win enough seats even to form a coalition.

Sarah Cox, Staff Writer