February 2, 2018 / 2:32 PM / 10 months ago

UPDATE 5-Gold falls 1 pct after U.S. payrolls beat expectations

    * U.S. non-farm payrolls data beat expectations
    * Palladium on track for biggest weekly drop since Sept
    * GRAPHIC-2018 asset returns: tmsnrt.rs/2jvdmXl

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    By Jan Harvey
    LONDON, Feb 2 (Reuters) - Gold fell 1 percent on Friday in
the wake of stronger than expected U.S. non-farm payrolls data
which shored up expectations that the Federal Reserve will press
ahead with interest rate hikes this year.
    That drove the dollar higher against a currency basket,
putting it on track for its biggest one-day rise since late
October, pressuring gold, which is priced in the U.S. unit.
      
    Spot gold        was down 1 percent at $1,334.95 an ounce at
1420 GMT, while U.S. gold futures        for June delivery were
$10.30 an ounce lower at $1,337.60 an ounce.
    Labor Department data showed U.S. job growth surged in
January and wages rose further, posting their largest annual
increase in more than 8-1/2 years. That supported expectations
that inflation will rise this year.             
    "This should cause rate hike expectations, lift the U.S.
dollar and weigh on gold," Commerzbank analyst Carsten Fritsch
said. "In particular the wage rise is eye-catching as this could
ultimately push core inflation towards the Fed's 2 percent
target."
    "The Fed already raised its inflation view in the statement
this week," he said. 
    The U.S. bond market's gauges of inflation expectations
added to their earlier rise on Friday and U.S. Treasury yields
rose further, with the 10-year hitting a four-year high as the
data intensified the current bond market rout.             
    The dollar's bounce put it on course for its first weekly
increase in seven weeks, after the currency slid to a three-year
low last week. Its weakness was a key factor driving gold to
17-month highs on Jan. 25 at $1,366.07 an ounce. 
    "For gold it is more about the U.S. dollar," ABN Amro
analyst Georgette Boele said. "Even if rate hike expectations go
up but the U.S. dollar doesn't, gold will perform well."
    On the physical side of the market, demand improved this
week in major consumer India, with jewellers resuming purchases
after the government kept import taxes on the metal unchanged.
Demand remained subdued in most other centres in Asia.         
    Holdings of the world's largest gold-backed exchange-traded
fund, New York's SPDR Gold Shares      , were on track to
decline for the first week in three this week, indicating more
subdued investment appetite for the metal.           
    Silver        was 1.7 percent lower at $16.94 an ounce,
while platinum        was down 1 percent at $995.30 and
palladium        was up 0.6 percent at $1,042.97. 
    After hitting record highs this month, palladium fell to its
lowest since Dec. 18 at $1,013.72 on Thursday and is on track
for its biggest weekly drop since early September, down 4.4
percent. 

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