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Gold slides below $1,630/oz

Gold prices fell in Europe on Friday and were on track for their biggest weekly loss in seven, as traders took to the sidelines ahead of key payrolls data later in the day, and as the euro weakened ahead of elections in France and Greece this weekend.

The U.S. non-farm payrolls data at 1230 GMT, a closely-watched barometer of the wider economy, is expected to show the economy added 170,000 jobs in April.

If the data beats expectations, it will further erode the case for the Federal Reserve to unleash another round of quantitative easing to stimulate the economy.

That would likely hurt gold, as expectations for a fresh round of QE, which would undermine the dollar and keep real interest rates at rock-bottom levels, have been a major driver of higher gold prices this year.

Spot gold was down 0.5 percent at $1,629.36 an ounce at 0925 GMT, while U.S. gold futures for June delivery were down $4.80 an ounce at $1,630.10.

Spot prices have fallen nearly 2 percent so far this week, their biggest weekly loss since mid-March.

“Our economists expect NFP to show a modest gain of 125,000, versus a consensus of 160,000,” BNP Paribas analyst Anne-Laure Tremblay said. “Such an outcome would probably be more positive for gold, as it would raise the possibility of further monetary accommodation by the Fed before the end of the year.”

The euro fell 0.1 percent against the dollar, meanwhile, ahead of elections in France and Greece on Sunday, the results of which may stir doubts about the countries’ commitment to fiscal austerity.

In France, socialist front-runner Francois Hollande has promised to shift the debate in Europe towards promoting growth if he is elected. Greek voters angry with economic hardship are expected to punish traditional parties in an election that could plunge the country into new political chaos.

A potentially tumultuous weekend for European politics pushed Europe’s leading shares lower on Friday, while safe-haven German bunds were flat ahead of the jobs data.

“An acceleration of the focus on Europe could potentially be very disruptive for markets and derail investor sentiment yet again,” UBS said in a note on Friday.

“With gold still undecided as to whether it would rather sympathise with risk or safe haven assets, the reaction function of XAU/USD remains unclear at this point,” it added. “But given the pressure renewed European tensions would have on the single currency, (gold in euro terms) might be poised to benefit.”

Euro-priced gold was down 0.3 percent at 1,240.11 euros an ounce, and is on track to fall 1 percent this week.

SUPPORT HOLDS

From a technical perspective, a breach of current support for spot prices around $1,628 an ounce could trigger a move back to $1,612-1,615 and from there towards $1,600, analysts who study past price moves for clues as to the future direction of trade said.

If the metal stabilises at its current level, it would likely bounce back to $1,640 an ounce, however.

Among other precious metals, silver fell to a 3-1/2 month low at $29.75 and was on track to fall 4.5 percent on the week, having slipped below $30 an ounce for the first time since mid-January. It was later down 0.7 percent at $29.84.

If it closes the week in the red, it will have fallen for eight out of 10 weeks. The gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, rose to a 3-1/2 month high of 54.6 on Friday.

“(The silver) market will remain in fundamental surplus through to 2015,” RBS said in a report. “Already we had net disposals in 2011 of 806 tonnes, and a further 265 tonnes of outflows since early March this year.”

“We think the silver price has peaked and forecast silver to average $33 an ounce in 2012, down 6 percent year on year, and to continue declining through to a 2015 average of $21,” it added. “We expect to see price volatility make silver a classic trading top and tailing market for the quick and nimble.”

Spot platinum was down 0.3 percent at $1,525.49 an ounce, while spot palladium was down 0.8 percent at $651.83 an ounce.