Gold prices dropped 1% on Friday after stronger-than-expected U.S. payrolls data boosted the dollar and Treasury yields. Spot gold fell 0.7% to $4,059.90 an ounce, hitting a low of $4,033.29 earlier in the session. Despite the decline, spot gold was up 4.8% for the week. U.S. gold futures for December delivery also dropped 1% to $4,071.80.
The U.S. dollar rose 0.7% to its highest level since October 29, making gold more expensive for holders of other currencies. Benchmark 10-year Treasury yields also climbed. Independent metals trader Tai Wong noted that gold 'gapped lower on a stellar employment report' but was trying to recover.
U.S. nonfarm payrolls increased more than expected in October, with the unemployment rate falling to 4.1%. This resilience in the labor market gave the Federal Reserve more scope to focus on inflation stemming from the Middle East conflict. Traders now see a 74.8% chance of a rate hike in December, up from 72.8% before the payrolls report.
Higher interest rates raise the opportunity cost of holding non-yielding bullion, making gold less attractive. Meanwhile, Brent crude was on track for a sharp weekly drop on expectations of a de-escalation in the US-Iran war, though Middle East supply concerns continued to support prices. On the physical front, lower gold prices encouraged Indian retail buying ahead of the Diwali festival.