Gold falls on higher dollar after U.S. jobs data

By Marcy Nicholson and Clara Denina

NEW YORK/LONDON (Reuters) - The price of gold dropped on Wednesday, retreating from a three-week high set in the previous session, after a rise in the dollar on the back of strong economic data.

U.S. private employers added 179,000 jobs in July, above economists' expectations, a report by a payrolls processor showed.

Spot gold fell 0.4 percent to $1,357.96 an ounce by 3:10 p.m. EDT (1910 GMT). It had touched $1,367.33 per ounce, its highest since July 11, on Tuesday.

The most active U.S. gold futures for December delivery settled down 0.6 percent at $1,364.70 an ounce.

"The NFP release on Friday can definitely lead to a price reaction in gold through the euro/dollar movements," Commerzbank analyst Daniel Briesemann, referring to official U.S. jobs data.

The private employment figures came ahead of the U.S. Labor Department's more comprehensive monthly non-farm payrolls report on Friday, which includes both public- and private-sector employment.

"Notwithstanding a really poor GDP print, there is a probability that non-farm payrolls will be very good and that brings rate hikes back on the agenda and therefore the dollar will strengthen and gold will come off," said Daniel Smith, commodity director at Oxford Economics.

The dollar recovered from Tuesday's six-week low, rising 0.5 percent against a basket of currencies, which makes gold more expensive for holders of foreign currencies.

"People think we're going to see a stronger non-farm report," said Phillip Streible, senior market strategist for RJO Futures in Chicago.

"It doesn't mean we're going to see (U.S.) interest rates ... but global interest rates may start their decline and things may level off," he added.

Higher U.S. interest rates would lift the opportunity cost of holding gold, which has surged about 28 percent this year on expectations the Fed would keep rates unchanged.

Chicago Federal Reserve Bank President Charles Evans offered a lukewarm endorsement of an interest rate increase later this year, despite his worry that inflation is still undershooting the U.S. central bank's target of 2 percent.

Holdings of SPDR Gold Trust , the world's largest gold-backed exchange-traded fund, rose 0.6 percent to 969.97 tonnes on Tuesday.

Among other precious metals, spot platinum was down 0.4 percent at $1,158.95 an ounce, after touching $1,177.40 in the previous session, its highest since April 2015.

Spot palladium dipped 0.7 percent to $709.50, after rising to $722.90 on Tuesday, its highest since June 2015.

Spot silver dropped 1.1 percent to $20.39 per ounce, a day after hitting a four-week high of $20.78.

(Additional reporting By Nallur Sethuraman and Koustav Samanta in Bengaluru; editing by Greg Mahlich, G Crosse)