Gold recovers from five-week low after U.S. jobs data

By Marcy Nicholson and Jan Harvey

NEW YORK/LONDON (Reuters) - Gold recovered on Friday from an early drop to five-week lows after a U.S. non-farm payrolls report for February failed to meet elevated expectations, prompting a drop in the dollar and Treasury yields.

The Labor Department data, which showed U.S. non-farm payrolls rose 235,000 last month, beat official forecasts but was not enough to satisfy those whose expectations had been boosted by a strong private payrolls number earlier in the week.

The U.S. dollar fell against a basket of currencies amid disappointment that wages were only growing gradually. The figures shored up prospects for the Federal Reserve to hike interest rates this month, however. Anticipation of a March hike has put gold on track for its biggest weekly loss in four months this week. Spot gold was up 0.1 percent at $1,202.36 an ounce by 2:56 p.m. EST (1956 GMT), after falling to $1,194.55, its weakest since Jan. 31. U.S. gold futures for April delivery settled down 0.2 percent at $1,201.40."Whisper estimates for job growth were probably a bit higher after the strong ADP (private payrolls) number," Commerzbank analyst Carsten Fritsch told the Reuters Global Gold Forum. "Jobs growth was stronger than expected, but wage growth remains subdued, so the last link to higher inflation is still missing." Gold is 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 metal remains vulnerable to signs real interest rates are increasing, analysts said.

"All eyes are now on Wednesday's rate hike and what will happen when it actually comes to fruition," said Miguel Perez-Santalla, vice president of Heraeus Metal Management in New York, adding that precious metals prices were holding ground.

"Many expect this as a bullish signal but many traders are going to the sideline, preferring to be flat over the weekend." 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 outflow for the week so far to 6.5 tonnes. [GOL/ETF]

Silver was up 0.04 percent at $16.95 an ounce, after hitting its lowest since Jan. 27 at $16.78. It was on track to close the week down 5.6 percent, its weakest in four months.

Palladium was down 0.1 percent at $745.90, after falling to $739.43, the lowest since Feb. 3.

Platinum was up 0.6 percent at $937.80. However, platinum has fallen nearly 6 percent this week, having touched its lowest since Jan. 4 at $928.50.

(Additional reporting by Arpan Varghese in Bengaluru; Editing by Dale Hudson and Diane Craft)