NEW YORK (Dow Jones)–Fund selling clipped gold futures Friday as stronger-than-expected payrolls data sapped their safe-haven allure and a muscular U.S. dollar pressured prices.

August gold dipped $19.70 to settle at $962.60 an ounce on the Comex division of the New York Mercantile Exchange. Shortly after gold closed, the ICE Futures U.S. dollar index was up nearly 1.5%.

The funds essentially were unwinding a “rash” of buying that came in recent sessions on dollar weakness, said Michael Gross, broker and futures analyst with OptionSellers.com.

The funds were selling short, as well as liquidating some long positions, said George Gero, vice president with RBC Capital Markets Global Futures.

“The payrolls data were not as bad as everybody expected,” he said. “That probably changed some portfolio managers’ minds about the time it would take the economy to recover.”

Non-farm payrolls slid 345,000 in May, the U.S. Labor Department said Friday, well below the 525,000 decline economists had expected.

“Down the road that will be inflationary, but that took some of the risk premium out of gold,” said Sterling Smith, vice president with FuturesOne.

Last month’s payrolls drop was the smallest since September 2008, when the recession intensified in the wake of the collapse of Lehman Brothers.

“This is good news,” said Bill O’Neill, a principal with LOGIC Advisors. “The reality is that it lessens the crisis mentality. The alternative asset demand is lessened.”

Silver futures took their cue from gold. Comex July silver fell 50.7 cents to settle at $15.388 an ounce.

“Silver just kind of follows gold,” Gero said.

Meanwhile, Nymex July platinum fell $7.10 to settle at $1,286.20 an ounce, while September palladium on the exchange gained $4.40 to settle at $259.80 an ounce.

The platinum group metals ended mixed as the give-and- take of investor speculation was driving the metals. “There’s really nothing else out there,” a trader said.

With gold closing at $957 and silver $14.70 an ounce last week there was cause for celebration among precious metal investors.

Traders are pointing to overbought signals and cautioning that the market could pull back. But a peak price on Friday of $961 left gold just a tantalizing $39 below the $1,000 barrier.

Market gurus like Jim Sinclair have noted that these round numbers are always a big issue in markets, and he says gold will make it past and stay past $1,000 on its third attempt – that is where we sit today.

Chart views

Besides a glance at the gold chart indicates that the precious metal is not so much getting ahead of itself – that would come at $1,200-1,300 an ounce- it is merely back on trend in this bull market.

So much for the technicals, the fundamentals could scarcely be better. The fear of inflation and dollar devaluation is driving this rise in price, and the sudden slump in the value of the US dollar last week is the immediate cause of this price spike.

With the upcoming and seemingly unavoidable bankruptcy of General Motors on the horizon next week or the following week markets are likely to weaken. Equities are due to correct from their stunning bear market rally. That might or might not rally the dollar – depending on its steepness.

But last week we saw equities falling and the US dollar and bonds. The only show in town was precious metals. Could this be a new pattern?

Gold traders are looking back to past performance and the usual soft summer patch for prices. But we have been through a global financial crisis, which is still ongoing, since last summer and this pattern may have changed as a consequence.

There is certainly a good argument for selling equities – because the recovery is a long way off and mainly a fiction of lurid imaginations – and also avoiding US treasuries – because of the risk of devaluation.

Safe haven

Gold and perhaps even more silver offer protection against these factors, and as investors around the world cotton on to what is happening the tight supply in both these markets promises a price explosion to the upside.

Under Elliott Wave theory the price of gold could rise quickly to $2,500 an ounce with silver surging past $100, and that is another excellent reason to pile into precious metals before the rest of the herd.

Sell in May and buy gold and silver?

That old stock market ruse has it that you should sell in May and go away. With the bear market rally on its last legs that might be excellent advice this year.

However, there is a new twist. Gold and silver have just broken out on the upside and there is good reason to think we could be close to a parabolic ascent for precious metals.

Prices going up

All the ducks are in line. Alternative investments are all under pressure, including US treasuries and cash in the form of the US dollar. At the same time, the money supply is exploding.

Moreover buyers from the world’s top hedge funds to countries like Russia, China and Saudi Arabia are serious about building up their gold stocks. Retail buyers too are increasingly cashing out and buying into gold and silver.

The summer is normally a weak time for precious metals but you have to wonder about 2009. It is the cycle of Indian festivals that produces summer weakness. But this is a year when investment demand has taken over the market, and it could be very different.

Those gold bugs following their traditional chart patterns are probably going to miss the biggest boat since Midas found that everything he touched turned to gold. If ever there was a moment to buy and hold this is it.

Gold stocks

More sophisticated investors will now look quickly for ways to gear up into the gold rush. Gold stocks outperformed the metal last week, and should provide positive gearing, even in a falling stock market.

Silver is a way to lever gold prices and has also continued to outperform the yellow metal. Silver is simply a much smaller market so the effect of increased demand is that much stronger on prices. Unless the fundamentals of supply and demand on price fail to operate this is going to be repeated in this gold bull market.

Marc Faber has said investors should also start looking at the junior exploration stocks, and there is much value to be had in the holders of gold and silver claims. The value of claims – actually good and bad ones – is even more leveraged against the gold price than silver.

Gold traded little changed near the highest in more than two months as a weakening US dollar spurred interest in the precious metal as a haven investment.

Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, rose for the first time since May 13. Assets stood at 1,118.76 metric tons on May 22, according to figures on the company’s website. The Dollar Index, which measures the greenback against six major trading partners, was little changed after falling to the lowest this year on May 22.

”With a global recovery unlikely to be smooth, the two main risks to most asset values are inflation and the US dollar — both of which are decisively gold-positive,” Morgan Stanley analysts led by Hussein Allidina said in a report.

Gold for immediate delivery was at $US956.35 in Singapore. The metal advanced to $US961.33 on May 22, the highest since March 20.

The US dollar approached its weakest level this year against the euro before the release of an Ifo Institute for Economic Research report today that economists say will show German business confidence rose in May, extending April’s rebound from a 26-year low. The dollar was at $US1.4007 per euro from $US1.3998 in New York on May 22, when it tumbled to $US1.4051, the lowest level since Jan. 2.

Twenty-three of 30 traders, investors and analysts surveyed by Bloomberg News, or 77 per cent, said gold would climb this week. Five forecast lower prices and two were neutral.

Among other precious metals for immediate delivery, silver gained 0.3 per cent to $US14.7250 an ounce, platinum was up 0.2 per cent at $US1,159 an ounce and palladium was little changed at $US233.50 an ounce in Singapore.