Gold dips as strong US labor data fuels rate-hike bets

Gold prices slipped to a near one-week low on Thursday after a better-than-expected U.S. private payrolls report fuelled expectations for more rate hikes from the Federal Reserve, lifting Treasury yields higher.

Spot gold GOLD was down 0.4% at $1,910.15 per ounce by 2:08 p.m. EDT (1808 GMT), while U.S. gold futures GOLD settled 0.6% lower at $1,915.40.

U.S. private payrolls increased more than expected in June, indicating strength in the labour market despite growing risks of a recession from higher interest rates.

Benchmark U.S. 10-year Treasury yields US10Y rose to a more than four-month peak, while yield on two-year U.S. Treasury note (US2YT=RR) hit the highest since June 2007 after employment data.

"The weakness that we're seeing in gold is reflective of the expectations for a Fed that is more likely to raise interest rates at the July meeting," said David Meger, director of metals trading at High Ridge Futures.

"We're seeing continuing jobless claims come down and the ADP private payroll numbers came out better than expected. As a result, we're seeing yields increasing and hence some more pressure applied to the gold market."

Data showed the number of Americans filing new claims for unemployment benefits increased moderately last week, pointing to only a gradual easing in labour market conditions.

Fed Bank of Dallas President Lorie Logan said there was a case for a rate rise at the June policy meeting, in comments that affirmed her view that more rate increases will be needed to cool off a still-strong economy.

Investors now see a 92% chance of a 25-basis-point hike in July after last month's pause, according to CME's Fedwatch tool. High rates discourage investment in zero-yield gold.

Focus still remains on Friday's U.S. nonfarm payrolls report for more clarity on the Fed rate-hike path.

Silver XAGUSD1! dipped 1.8% to $22.68 per ounce, platinum PL1! fell 1.4% to $902.66, while palladium XPDUSD1! slipped 1.3% to $1,244.09.