Gold sags to 5-1/2-year low, heads for worst week since October

By Manolo Serapio Jr

MANILA (Reuters) - Gold slid more than 1 percent to its lowest since early 2010 on Friday, on course for its biggest weekly loss in nine months, as upbeat U.S. jobs data helped deepen this week's rout and fuelled fears the metal still has some way to fall.

A breach of key support levels pushed more sellers to cut their exposure and market players warned that gold prices could fall further before any convincing recovery.

Bullion tumbled 3.3 percent on Monday, the biggest drop since September 2013, in a sell-off accompanied by big trading volume in New York and Shanghai. Friday's drop to session lows also saw sizable volume on those exchanges.

Spot gold fell as much as 1.2 percent to 1,077 an ounce, its lowest since February 2010. It was down 0.5 percent at $1,084.80 at 0610 GMT.

The metal has lost more than 4 percent this week, its steepest weekly drop since October last year.

"I think there's still a bit of a hangover from what occurred earlier in the week," said Victor Thianpiriya, a commodity strategist at ANZ Bank in Singapore.

"The technical picture looks pretty bad and U.S. data has been stronger than expected. I don't expect to see any meaningful bounce until we get to around $1,040 and I think some of these sellers know that."

U.S. gold for August delivery fell 0.9 percent to $1,083.90 an ounce after hitting a trough of $1,072.30, its cheapest since October 2009.

As the selling pressure intensifies, traders from Hong Kong to New York are pointing the finger at others for being behind Monday's rout, while struggling to unmask the mystery sellers.

Most analysts are looking for the Federal Reserve to raise rates by September, suggesting more risk for non-interest-bearing gold. Thursday's data showing U.S. weekly jobless claims dropping to its lowest since November 1973, puts the Fed on course for its first interest rate increase in nearly a decade.

As gold prices slump, holdings of SPDR Gold Trust, the world's biggest gold-backed exchange-traded fund, fell for a sixth day on Thursday to 22.01 million ounces, the lowest since August 2008.

And physical demand in Asia remained lacklustre amid modest premiums in top gold consumers India and China. China's factory sector shrank by the most in 15 months in July.

Macquarie said it had cut its gold price forecasts by 7-15 percent from this year through 2019, citing shaken investor confidence in bullion. The investment bank cut its 2015 estimate to $1,152 from $1,249.

"Gold has always had a dual nature as a currency and a commodity. At present it is not desired in either form," Macquarie analysts wrote.

"Eventually, though, shorts will have to cover, and we stick to our view that some confidence should return to the market post a Fed hike, though gains are likely to be slower and more moderate than we had previously predicted."

Spot palladium rose 0.6 percent to $618.95 an ounce and platinum gained 0.1 percent to $977, still trading near multi-year lows.

(Reporting by Manolo Serapio Jr.; Editing by Alan Raybould and Richard Pullin)