LONDON: Gold fell on Monday, set for its largest two-week fall in two months, after last week's US employment figures lifted the dollar, which limited the scope for short-term purchases, although longer-term investment demand for gold did not slacken.
Data on Friday showed the US economy generated more jobs than expected, while the jobless rate fell by a surprisingly large margin, which ignited optimism over the outlook for growth.
Spot gold was down 0.6 percent on the day at $1,770.10 an ounce by 1219 GMT, extending Friday's 0.5 percent drop. The gold price is on course for a decline of more than 1 percent in the last two days, which would be its biggest two-day drop since August.
"If we get slightly better US data going forward, which gives more support for the US economic recovery, we get a stronger dollar," Citigroup analyst David Wilson said.
"Obviously, Europe is still continuing to struggle and that would suggest that the rally is done for the time being, although I'm not saying gold won't see more upside further out."
The Federal Reserve pledged in September to buy $40 billion a month in mortgage-backed securities to lower borrowing rates and keep credit flowing through the economy, as long as job creation remained sluggish.
The pickup in the labour market translated into strength in the dollar against a basket of currencies on Monday.
The dollar and the yen rose, driven by concern about the outlook for the global economy after the World Bank's downgrade of economic forecasts for parts of Asia prompted investors to favour lower-yielding currencies.
With the yen set for its largest one-day gain versus the dollar in a month, yen-priced gold fell by 1.1 percent to a one-week low of 138,140 yen an ounce, on course for its largest one-day decline since July.
"Although gold has lacked the appetite to overcome $1,800 - it's clear that the buying momentum evident last month has undoubtedly slowed down - both Friday's reaction and recovery post (jobs data) highlighted that sellers lack conviction while buyers are prepared to step in during pull-backs," UBS analyst Edel Tully said in a note.
"This doesn't help gold break $1,800, but for sure it highlights that there is little conviction to get out, even if the data isn't supportive. This highlights gold's supportive backdrop."
ETP HOLDINGS AT RECORD
Momentum in gold buying may have slowed, but longer-term demand, as reflected by the continued inflows of metal into exchange-traded products, remained healthy.
Holdings of gold in ETPs touched a new record of 74.725 million ounces by Friday's close. So far in 2012, holdings have risen by a net 5.7 million ounces and 4.5 million of this total have flowed in over the last two months alone.
Anticipation of gold-friendly monetary policy by the world's major central banks, along with a seasonal pick-up in buying, especially in India, the world's largest gold consumer, have buoyed the gold price and enticed more investment.
The world's largest ETPs now hold more gold than the combined reported reserves of Switzerland and China and would rank sixth below France in a list of top official holders of bullion.
Ownership of US gold futures touched its highest in a year last week, following a fifth successive weekly rise in net non-commercial open interest, the longest such stretch of gains in five years, according to data from the Commodity Futures Trading Commission (CFTC).
Net non-com open interest, one gauge of more speculative demand for gold, hit a one-year high of 208,326 lots, equivalent to 20.83 million ounces, and now accounts for almost half of total gold futures open interest of 48.090 million ounces.
In other precious metals, silver fell by 1.7 percent to $33.87 an ounce, bringing the loss in value over the last two days to more than 3 percent, which wipes out the gains of the last two weeks that took the price to seven-month highs.
Platinum and palladium were down between 1.0 and 1.5 percent. Platinum was at $1,680.24 an ounce.
Production was still paralysed across much of South Africa's platinum belt, home to the world's largest platinum reserves, as a series of wildcat strikes raged on.
Since mid-August nearly 50 people have died in clashes with police and between rival trade unions and thousands of workers have downed tools to demand higher wages.
Strikes have crippled some of the world's largest platinum mines, including those of Anglo American Platinum, the biggest producer.
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