Gold edges above $1,280 ahead of U.S. jobs data

By Jan Harvey

LONDON (Reuters) - Gold edged higher on Friday as a retreat in the dollar helped the metal to snap four days of losses, though moves were muted as traders took to the sidelines ahead of U.S. non-farm payrolls data later in the day.

A strong payrolls number could prompt the U.S. Federal Reserve to raise interest rates sooner rather than later, hurting non-yielding gold.

The metal has rallied nearly 21 percent this year on expectations that the Fed will slow the pace of rate increases.

Spot gold rose 0.3 percent to $1,281.20 an ounce by 0934 GMT, while U.S. gold futures for June delivery gained $10.80 to $1,283.10. For the week, however, gold was set for a 1 percent drop, its biggest decline since the week ended March 25.

"There has been an element of profit-taking over the last few days, which was to be expected given the impressive run-up over the previous couple of weeks," Mitsubishi analyst Jonathan Butler said.

"Expectations of rate rises, according to the futures market, are still being pushed out to the end of this year, if not 2017. I do think there is still a chance of there being a hike in June, and if we see a strong payrolls number this afternoon, that is going to add weight to those expectations."

Economists polled by Reuters forecast that U.S. employers are likely to have added 202,000 workers in April after a 215,000 increase in March, with the jobless rate holding at 5 percent.

The dollar slipped against a basket of currencies as investors readied for the payrolls report but stayed on track for weekly gains.

The Fed raised rates for the first time in a decade in December but has since held back from increases, partly because of global economic uncertainty.

St. Louis Fed President James Bullard said on Thursday that the Fed could raise rates at its June meeting if the economic data calls for it. Atlanta Fed President Dennis Lockhart, meanwhile, said he was undecided about backing a rate rise next month.

"Strong employment growth could reassure the Fed that the economy is expanding and bring forward a rate hike, which would likely weigh on gold," HSBC said in a note.

Among other precious metals, silver was up 0.2 percent at $17.36 an ounce. Platinum rose 0.3 percent to $1,060.99 and palladium gained 0.7 percent to $600.97.

(Additional reporting by A. Ananthalakshmi in Singapore; Editing by David Goodman)