Gold drops as strong US payrolls boost dollar, yields

Gold prices dropped on Friday following stronger-than-anticipated US employment figures that suggested the Federal Reserve could maintain higher interest rates for a longer period, strengthening the dollar and elevating Treasury yields. Spot gold tumbled 0.3% to $4,074.36 per ounce, dipping below $4,033.29 at one point during the day.

Over the week, gold rose 5.2%, setting a week-long high since August. In December, US gold futures slipped 0.9% to $4,074.90. The US dollar surged 0.7%, reaching its highest level since October 29, making dollar-denominated gold more expensive for investors holding other currencies. Meanwhile, 10-year Treasury yields climbed. Gold opened lower after a robust employment report came in stronger than expected, but is attempting to regain lost ground.

This serves as a key indicator for this week's rally, according to Tai Wong, an independent metals trader. The US nonfarm payrolls surged beyond expectations in October, and the unemployment rate fell to 4.1%, indicating a resilient labor market and providing the Federal Reserve with more room to focus on inflation resulting from the Middle East conflict.

Traders currently estimate an 81% probability that the Fed will raise rates in December, up from 72.8% before the payrolls report, as per CME's FedWatch tool. Higher interest rates increase the cost of holding non-yielding bullion, making gold less appealing to investors. Brent crude oil was set to see a significant weekly decline as hopes of a de-escalation in the US-Iran conflict following midterm election results kicked in, despite ongoing Middle East supply concerns keeping prices elevated.

Ahead of the key Diwali festival, lower gold prices encouraged Indian retail buying. On the physical front, spot silver gained 0.8% to $52.18, platinum rose 1.6% to $1,541.42, while palladium slipped 0.6% to $1,024.59. All three metals were on track for weekly gains.