MAY 19, 2011, 3:31 P.M. ET.

PRECIOUS METALS: Economic Recovery Dulls Gold, Silver Appeal

NEW YORK (Dow Jones)--A stronger U.S. employment picture weighed on gold prices, with silver losing steam to end in negative territory as traders remain jittery after the metal's steep losses earlier this month.

The most actively traded gold contract, for June delivery, ended down $3.40, or 0.2%, at $1,492.40 a troy ounce on the Comex division of the New York Mercantile Exchange. The May-delivery contract was down $3.40 at $1,492.20 with one contract traded.

Silver prices, which have been volatile since a 27% decline in the first week of May, quieted down. The most active contract, for July delivery, slipped 16.5 cents, or 0.5%, to $34.932 a troy ounce. Thinly traded May-delivery silver was down 16.7 cents, or 0.5%, at $34.927 a troy ounce.

"Silver is just consolidating on its 100-day moving average of $34.765. The market needs to consolidate after very big moves," said Charles Nedoss, senior market strategist with Olympus Futures.

When prices move above the 100-day moving average, technical traders consider the market is entering an up-trend and tend to purchase the metal, while crossing below this average would indicate a down-trend and is considered a sell signal.

The number of U.S. workers filing new claims for unemployment benefits fell by 29,000 last week to a seasonally adjusted 409,000, the Labor Department said. This outpaced the 11,000 decline forecast by a survey of economists.

The news soured investor sentiment toward gold, as it is considered a hedge against economic uncertainty and falls from favor when economic conditions improve.

Some market participants worry that the Federal Reserve will cut its loose monetary policy sooner on indication that the recovery is picking up speed.

"Better jobless-claims numbers means a less open Fed policy down the road," said Sterling Smith, an analyst at Country Hedging.

The World Gold Council said Thursday that global demand for the yellow metal rose 11% on year in the first quarter of 2011, to 981.3 metric tons. While the increase was helped by greater demand for jewelry in markets such as India and China, it was largely attributable to a widespread rise in bar and coin purchases.

India remained a pillar of the market, although physical investment demand from China more than doubled on-year to 90.9 tons and Chinese jewelry demand was 21% higher at 142.9 tons.

"Western gold demand is growing as the economies remain weak, but Asian demand is surging as GDP grows," said BullionVault's head of research Adrian Ash. "Together, this keeps creating the perfect storm for short-term pricing."

Figures released by the London Bullion Market Association late Wednesday show investors remained enamored with physical ownership of precious metals in April. The number of gold ounces transferred in April rose 18% month-on-month, to an average 22.5 million a day. Year-on-year the figure was up by 41%, from 16 million ounces a day.

The number of silver ounces transferred rose 23% to a daily average of 179.2 million. Year-on-year the number was up 93%, from 92.7 million ounces a day in April 2010.

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