Gold fell 1.5 percent on Friday as a disappointing U.S. jobs report spurred deflation fears, prompting investors to seek refuge in the perceived safety of the dollar and sell gold along with commodities and equities.
Bullion dropped more than 1 percent for the week, as prices slid on Friday after data showed U.S. nonfarm payrolls grew at a less-than-expected pace in June. A $3 drop in crude oil and a sell-off on Wall Street stirred fears of a global economic slowdown which have recently heavily pressured gold prices.
"Gold's decline today has to do with the notion that even though the job report is very weak, the lack of conviction that there will be another economic stimulus has caused a lot of shorter-term gold investors to sell," said Jeffrey Sica, chief investment officer of SICA Wealth Management with over $1 billion in assets.
Even though economists said the report would push the U.S. Federal Reserve closer to additional monetary easing, which should help gold, a sharp sell-off in riskier assets across the board more than offset any hopes of Fed action for now, traders said.
Spot gold was down 1.6 percent at $1,579 an ounce by 3:04 p.m. EDT (1904 GMT).
U.S. gold futures for August delivery settled down $30.50 at $1,578.90 an ounce.
Silver fell 2.5 percent to $26.97 an ounce.
Bullion briefly turned higher after the report showed job creation during the month was not enough to bring down the U.S. unemployment rate at 8.2 percent, as it fueled concerns that Europe's debt crisis was shifting the U.S. economy into low gear.
"Certainly it brings up the picture of additional easing discussion if the job number remains weakened, and that alone is enough to buoy gold," said James Steel, chief metals analyst at HSBC.
The payroll report has raised the chances in favor of the Federal Reserve launching a new round of monetary stimulus to boost growth, a Reuters poll of 15 Wall Street economists showed a 65 percent chance the Fed will for the third time expand its balance sheet via large-scale bond purchases.
Gold has been particularly sensitive to central banks' monetary policies. In February, it was up 15 percent for the year after the Fed said it would keep interest rates near zero until late 2014.
On Friday, bullion is only up less than 2 percent.
PHYSICAL DEMAND SLOW
There was little support for gold from the physical market, where bullion demand remained subdued after prices rose above $1,600 earlier this week, with dealers in Asia said to be waiting for a lower price level.
In another sign of weak physical demand, Hong Kong shipped 75,456 kg of gold to mainland China in May, down 26 percent from the previous month, trade data showed.
In platinum group metals, platinum dropped 2.3 percent to $1,435.75 an ounce, and palladium eased 1.3 percent to $573.23.
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