Gold declines as drop in US jobless rate fuels Fed Bets

(Bloomberg) - Gold futures fell to the lowest in two weeks as the United States unemployment rate dropped to a seven-year low, fuelling speculation that the Federal Reserve will raise interest rates this month.

The jobless rate fell to 5.1 per cent in August, the lowest since April 2008, a government report showed Friday. Average hourly earnings climbed more than forecast and workers put in a longer workweek.

The Fed is weighing whether the economy is strong enough to tighten monetary policy, which would curb the appeal of gold because the metal does not pay interest.

Bullion prices in August posted the first monthly gain since May as a retreat in global stocks and a devaluation in China's currency fuelled speculation that the Fed would hold off on raising interest rates this month.

The Fed has signalled that it is likely to raise rates this year for the first time since 2006 as the labor market improves.

"Employment headlines are back to pre-crisis levels, and that builds up the story of the U.S. recovery," Mr Alfonso Esparza, a senior currency analyst at OANDA in Toronto, said in a telephone interview.

"If the Fed manages to get one rate hike in this year, that would be something to put downward pressure on gold."

Gold futures for December delivery fell 0.3 per cent to settle at $1,121.40 an ounce at 1:46 p.m. on the Comex in New York, after dropping to $1,115.70, the lowest since Aug. 19.

Holdings in exchange-traded products backed by gold fell 0.9 metric ton to 1,522.4 tons, according to data compiled by Bloomberg as of Thursday. Assets are near the lowest since 2009.

Silver futures for December delivery declined 1.1 per cent to $14.549 an ounce on the Comex. On the New York Mercantile Exchange, platinum futures for October delivery slid 1.8 per cent to $992.40, and palladium futures for December delivery dropped 0.8 per cent to $577.15 an ounce.