Gold falls as tight US labor market suggests higher rates

Jan 5 (Reuters) – Gold prices pared losses on Thursday after Fed remarks of inflation easing in 2023, after slipping more than 1% on reports of a tighter-than-expected US labor market boosting expectations of higher interest rates for longer.

Spot gold pared losses and fell 0.9% to USD 1,837.01 per ounce by 1:40 p.m. ET (1840 GMT), earlier falling as low as USD 1,824.08.

US gold futures settled down around 1% at USD 1,840.6.

The strength in the dollar index was weighing on gold, said Phillip Streible, chief market strategist at Blue Line Futures in Chicago, highlighting that the Fed would continue to remain hawkish for longer as the labor market continues to be strong.

The dollar was up 0.7%, making gold more expensive for holders of foreign currencies, yet benchmark 10-year yields edged lower.

Higher interest rates tend to weigh on non-yielding bullion since it pays no interest.

The number of Americans filing new claims for unemployment benefits dropped to a three-month low last week while layoffs fell 43% in December, pointing to a tight labor market.

The US economic outlook presented by Fed staff at last month’s meeting suggested that the battle to lower prices may last longer than anticipated.

While a couple of Fed officials on Thursday reiterated their fight to lower inflation back to its 2% target, yet St. Louis leader James Bullard said 2023 could finally bring some welcome relief on the inflation front.

Traders now await the US Labor Department’s nonfarm payrolls (NFP) data on Friday.

“If we get the same kind of ‘beats-expectations’ (report), we’ll probably see another extension lower on gold and silver – USD 1,805-USD 1,800 is your key level support,” Streible added.

Spot silver fell 1.7% to USD 23.32 per ounce, platinum dropped 1.5% to USD 1,062.06 while palladium fell 2.8% to USD 1,738.75.

(Reporting by Seher Dareen in Bengaluru; Editing by Devika Syamnath and Shailesh Kuber)