Gold set for largest two-day fall since August

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 1005 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 1.2 percent to a one-week low of 138,062 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 $1800, 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."