Gold slips on dollar strength ahead of US jobs data

Gold prices slipped Thursday as the dollar firmed and equities rose ahead of Friday's non-farm payrolls report that should bolster expectations of a US interest rate hike that would push investors to exit their bullion holdings.

Spot gold edged lower 0.1 per cent at $1,264.90 an ounce by 0403 GMT. Bullion touched a fresh low of $1,261.59 in the previous session, its lowest since June 24.

US gold futures fell 0.1 per cent to $1,267.90 an ounce.

Friday's employment report is expected to show 175,000 jobs were added in the month, according to the median estimate of 100 economists polled by Reuters.

A positive jobs report may provide more evidence to the US Federal Reserve to decide to raise interest rates in December. Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets.

"The labour market is closely watched by not only the Fed but also market watchers. So its surprise on upside will make market watchers expect an even higher probability of rate hike and that could bring gold prices down," said OCBC Bank analyst Barnabas Gan.

"I would advise to buy on dips for gold simply because the fall in gold prices is very much driven by very short term factors: like a higher probability of a Fed rate hike and higher oil prices," Gan said, who has kept his year-end forecast of $1,350 an ounce.

The dollar index, which tracks the currency against a basket of major peers, was up nearly 0.1 per cent on Thursday at 96.205. 

US services sector activity rebounded to an 11-month high in September.

Traders priced in a near 65 per cent chance of a rate hike in December after the report.

Spot gold is expected to test a support at $1,260 per ounce, a break below which could cause a loss to $1,250, said Reuters technical analyst Wang Tao.

Spot gold fell 3.3 per cent on Tuesday, breaking well below its key technical $1,300-an-ounce level, its biggest one-day drop in three years. The yellow metal has fallen to its lowest level since Britain voted to leave the European Union in June.

"With the charts still looking problematic for the precious metals group and overall fund length relatively high as well, we think that the intermittent rallies we are seeing will likely be used as selling opportunities," INTL FCStone analyst Edward Meir said in a note.

Among other precious metals, silver was nearly unchanged at $17.70 an ounce. The metal touched a low of $17.51 on Wednesday, its weakest since June 28.

Platinum fell 0.4 per cent to $971.80 an ounce, after touching its lowest in more than three months in the previous session.

Palladium was down 0.1 per cent at $676.