Gold settled 3.1 percent lower on Friday at $1,212 after positive U.S. jobs data sent the dollar rallying and rekindled worries the Federal Reserve could be tempted to scale back its monetary stimulus later this year.
The U.S. non-farm payrolls report for June showed employers added 195,000 new jobs last month, exceeding expectations of 165,000. The unemployment rate held steady at 7.6 percent.
The better-than-expected job numbers are among data that could steer the Fed toward a shorter timetable for its $85 billion in monthly bond purchases, analysts said.
Concerns about when the U.S. central bank could begin paring its stimulus has triggered turbulence across major asset classes worldwide. That has prompted Fed officials to back-pedal on Chairman Ben Bernanke's recent suggestion that the retreat could occur between later this year and next.
"The jobs numbers we got today simply reinforce the market's forward-looking position on where gold is likely to be down the road," said Frank McGhee, head precious metals trader at Integrated Brokerage Services in Chicago.
"The market is looking 6 to 8 months out, pricing gold in a rising interest rates environment."
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Spot gold price of bullion dropped by as much as 3.3 percent to a session low of $1,207.50 an ounce and later inched up to $1,215, still down nearly 3 percent and set for a third consecutive week of losses.
U.S. gold futures for August settled $39.20 lower at 1,212.70 an ounce.
Gold posted its biggest quarterly loss on record, down 23 percent for April-June and hit a near 3-year low of $1,180.71 last week, on selling exacerbated by Bernanke' comments that the economy was recovering strongly enough for the Fed to begin tapering in the next few months.
Such a retreat would support a rise in interest rates, making gold less attractive as a buy-and-hold asset.
Dollar at 3-Year High
The dollar rose to a three-year high against a basket of major currencies in Friday's session.
"We fully expect that, if the U.S. economy continues to improve, you will see a further strengthening of the dollar, which is negative for the dollar-denominated gold price," said Nic Brown, analyst at Natixis in London.
Gold has also come under pressure after the European Central Bank signaled in the previous session that it could cut interest rates further, a move that will push the dollar even higher and weigh on gold.
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"The euro is likely to remain week, as the ECB will remain accommodative longer than the Fed... And when combined with relatively subdued inflation expectations on both sides of the Atlantic, this is gold bearish," VTB Capital said in a note.
The benchmark 10-year U.S. Treasury yield rose to its highest level since August 2011 at 2.67 percent earlier. As gold pays no interest, the rise in returns from U.S. bonds and other markets is seen as negative for the metal.
Exchange-Traded Gold Adds to Pressure
Rapid outflows from gold exchange-traded products (ETPs) and softer-than-expected physical demand were other reasons for the weakness in gold.
Gold ETPs holdings fell by $4.1 billion in June and $28.2 billion year-to-date, according to data from BlackRock.
Indian consumption of gold has fallen since the country imposed new import restrictions. Chinese buyers are sidelined, waiting for prices to fall further, or at least stabilize.