Gold hits lowest since January ahead of U.S. jobs data

By Jan Harvey

LONDON (Reuters) - Gold fell to its lowest in more than five weeks on Friday as traders awaited U.S. payrolls data for signs of whether the economy is strong enough to support more Federal Reserve interest rate increases this year.

Growing expectations that the U.S. Federal Reserve will raise interest rates this month following a better than expected ADP payrolls report on Wednesday have pushed gold down 3 percent this week, potentially its biggest weekly loss in four months. The metal hit a low of $1,194.55 an ounce on Friday, after slipping below $1,200 an ounce in the previous session for the first time since Jan. 31.

Spot gold was down 0.2 percent at $1,198.18 an ounce at 1230 GMT, while U.S. gold futures for April delivery were down $5.40 an ounce at $1,197.80.

"We had a really quite phenomenal number in the ADP payrolls on Wednesday, and when you get such a big move in private payrolls, it would be highly surprising if the official numbers moved lower," Mitsubishi analyst Jonathan Butler said.

A Reuters survey of economists predicted that non-farm payrolls probably rose by 190,000 jobs last month.

Fed Chair Janet Yellen said last week the central bank was poised to lift rates provided jobs and inflation data held up, comments seen as cementing plans for an increase at the Fed's March 14-15 meeting.

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. "If we see a very good payroll number today and also hawkish comments from the Fed next week, we could break out of this longer-term downtrend in fixed income, in the 10-year yield, and that is going to change the game as far as real rates are concerned," Butler said. "That is going to have a negative impact on gold."

Pointing to softening investor appetite, holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Shares, fell 2.7 tonnes on Thursday, bringing the total outflow for the week so far to 6.5 tonnes.

Among other precious metals, silver was down 0.2 percent at $16.91 an ounce, after hitting its lowest since Jan. 27 at $16.78. Palladium was down 0.2 percent at $745.28 an ounce. Platinum was up 0.7 percent at $938.97, bucking the bearish trend among precious metals. However, platinum has already fallen nearly 6 percent this week, having earlier touching its lowest since Jan. 4 at $928.50.

(Additional reporting by Arpan Varghese in Bengaluru; editing by David Clarke)