By A. Ananthalakshmi
SINGAPORE (Reuters) - Gold held close to a 4-1/2 year low and looked set to post its third straight weekly drop on Friday, as the U.S. dollar rallied on expectations the Federal Reserve could raise rates sooner rather than later.
A robust U.S. nonfarm payrolls report later in the day could provide more evidence of a strengthening economy, influencing the Fed and possibly hurting gold, a non-interest-bearing asset.
"A strong report has the potential to thrust gold back on the defensive," said HSBC analyst James Steel. "To some degree a gold-bearish view may already be factored into prices and so a weaker-than-expected report could trigger a modest rally."
As traders remained on the sidelines ahead of the jobs report, spot gold was little changed at $1,140.20 an ounce by 0320 GMT. That's just above the $1,137.40 level hit on Wednesday, its lowest since April 2010. The yellow metal has fallen nearly 3 percent so far this week.
The sell-off in gold began a week ago, when the metal broke through $1,180 - the lowest level reached during a 28-percent plunge last year. Since last Friday, strength in the dollar and breaks below key support levels have continued to drag on gold.
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The U.S. jobs report later today is seen as a potential trigger for the dollar and gold that could send bullion hurtling towards $1,000 an ounce, a level untouched since October 2009.
The dollar, trading at close to a four-year high against a basket of major currencies, is on track to post its third straight weekly gain on the steadily recovering U.S. economy.
In a reflection of market sentiment, SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.41 percent to 732.83 tonnes on Thursday - a new six-year low.
Other than dollar strength, analysts were concerned about the lack of robust demand in China. The top consumer of the metal typically buys a lot of jewellery, bars and coins whenever prices fall, providing a floor to down markets, but that hasn't happened this time around. This year's weak buying from China could add to pressure on gold prices.
Chinese prices were either on par or at a premium of less than $1 an ounce to the global benchmark on Friday. During last year's price plunge, Chinese premiums for gold climbed to around $50 an ounce at one point.
Among other precious metals, silver was stuck just above $15.13 - the lowest mark reached since February 2010 - as it headed for its fourth weekly decline in a row.
(Reporting by A. Ananthalakshmi; Editing by Joseph Radford and Tom Hogue)