Gold edges lower as focus shifts to U.S. payrolls data

By Jan Harvey

LONDON (Reuters) - Gold fell on Tuesday after Federal Reserve officials sounded a hawkish note on interest rates, boosting the dollar, while attention turned to U.S. payrolls data this week for further clues on the pace of rate hikes.

Fed Chair Janet Yellen said on Friday the case for higher rates was strengthening, though she gave little clarity on when it would move. Later that day Vice Chair Stanley Fischer suggested a hike was possible as soon as September and on Tuesday he said the U.S. job market was nearly at full strength.

Spot gold was down 0.2 percent at $1,320.33 an ounce at 1149 GMT, while U.S. gold futures for December delivery were down $3.7 an ounce at $1,323.40.

The pace of rate hikes is heavily dependent on U.S. economic data. Non-farm payrolls data due on Friday is seen as a key measure of the strength of the U.S. labour market, and could reinforce hawkish messages from Yellen and other Fed officials.

"For this week, the focus is on one thing and one thing only, which is the U.S. non-farm payrolls," Think Markets chief market analyst Naeem Aslam said. "This is the final piece of the puzzle which will enable the Fed to make their timeline decision with respect to a rate hike."

Gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.

The dollar rose against the euro on Tuesday as investors focused on the next set of U.S. data to see whether it supports expectations the Fed will raise interest rates soon.

Employers are expected on Friday to show 180,000 job gains in August, according to a Reuters poll, below the better-than-expected 255,000 additions in July and 292,000 gains in June.

"With investors pricing in a greater likelihood of a Fed rate increase before year end, pressure is likely to continue to weigh on gold," MKS said in a note.

Silver was down 0.4 percent at $18.77 an ounce, having hit a two-month low of $18.36 in the previous session.

Platinum was 0.2 percent higher at $1,076.20, while palladium was down 0.2 percent at $694.60. Platinum's discount to gold narrowed to $244 an ounce, from a near seven-week high of $253 an ounce at the end of last week.

(Additional reporting by Nallur Sethuraman in Bengaluru; Editing by Mark Potter)