NEW YORK: Gold prices fell 1 percent on Friday after stronger-than-expected US payrolls data reinforced expectations that the Federal Reserve could keep interest rates higher for longer, boosting the dollar and Treasury yields. Spot gold fell 1 percent to USD4,047.10 per ounce by 8:46 a.m. ET (1346 GMT).
The metal hit a low of USD4,033.29 earlier in the session. Spot gold was up 4.5 percent for the week, on track for its best week since late August. US gold futures for December delivery dropped 1.4 percent to USD4,057.20.
The US dollar rose 0.7 percent to its highest level since October 29, making dollar-denominated gold more expensive for holders of other currencies, while benchmark 10-year Treasury yields also climbed. “Gold gapped lower on a stellar employment report (that was) strong across the board, but is trying to claw back higher. This is a litmus test for this week’s rally,” independent metals trader Tai Wong said. US nonfarm payrolls increased more than expected in October and the unemployment rate fell to 4.1 percent, suggesting the labour market remained resilient and giving the Federal Reserve more scope to focus on inflation stemming from the Middle East conflict.
Traders currently see a 74.8 percent chance that the Fed will raise rates in December, compared with 72.8 percent before the payrolls report, according to CME’s FedWatch tool. Higher interest rates raise the opportunity cost of holding non-yielding bullion, making gold less attractive to investors.
Brent crude was on track for a sharp weekly drop on expectations of a de-escalation in the US-Iran war after midterm election results, although persistent Middle East supply concerns continued to support prices.
Two Federal Reserve officials on Thursday backed small, steady rate hikes to rein in above-target inflation. On the physical front, lower gold prices encouraged Indian retail buying ahead of the key Diwali festival. Gold had dropped to a one-year low of USD3,869.85 an ounce on October 30.
Among other metals, spot silver rose 0.3 percent to USD51.92, platinum gained 0.5 percent to USD1,524.03, while palladium fell 1.6 percent to USD1,015. All three were poised for weekly gains.