Gold recovered on Friday from an early drop to five-week lows after a US non-farm payrolls report for February failed to meet elevated expectations, prompting a drop in the dollar and Treasury yields. The Labour Department data, which showed US non-farm payrolls rose 235,000 last month, beat official forecasts but was not enough to satisfy those whose expectations had been boosted by a strong private payrolls number earlier in the week.
The figures shored up prospects for the Federal Reserve to hike interest rates this month, however. Anticipation of a March hike has put gold on track for its biggest weekly loss in four months this week. Spot gold was little changed at $1,200.70 an ounce at 1440 GMT, off an earlier low of $1,194.55, its weakest since January 31. US gold futures for April delivery were down $2.70 an ounce at $1,200.50.
"Whisper estimates for job growth were probably a bit higher after the strong ADP (private payrolls) number," Commerzbank analyst Carsten Fritsch told the Reuters Global Gold Forum. "Jobs growth was stronger than expected, but wage growth remains subdued, so the last link to higher inflation is still missing," he said. "That may keep the Fed at bay after the rate hike next week at least until June."
Gold is sensitive to rising US interest rates as these increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced. The metal remains vulnerable to signs real interest rates are increasing, analysts said. "If we see ... hawkish comments from the Fed next week, we could break out of this longer-term downtrend in fixed income, in the 10-year yield, and that is going to change the game as far as real rates are concerned," Mitsubishi analyst Jonathan Butler said.
"That is going to have a negative impact on gold." Pointing to softening investor appetite, holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Shares, fell 2.7 tonnes on Thursday, bringing the outflow for the week so far to 6.5 tonnes. Silver was down 0.1 percent at $16.93 an ounce, after hitting its lowest since January 27 at $16.78. Palladium was down 0.5 percent at $750.35 an ounce. Platinum was up 0.3 percent at $934.55. However, platinum has fallen nearly 6 percent this week, having touched its lowest since January 4 at $928.50.
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