LONDON Gold prices fell on Friday as the dollar index swung back into positive territory, after a closely watched U.S. employment report came in almost exactly in line with expectations, showing a solid pace of hiring in May.
Spot gold was down 0.4 percent at $1,247.84 an ounce at 1354 GMT, off an earlier high of $1,257.50, while U.S. gold futures for August delivery were down $5.30 an ounce at $1,248.
Traders had held off taking new positions ahead of the data after a near 1 percent gold price rally in the previous session following new stimulus measures from the European Central Bank.
While appetite for the metal initially picked up after the report, gains were capped by expectations that the Federal Reserve will continue to unwind its stimulus measures and that other assets will offer better returns, as well as the dollar's recovery.
"There can't be a substantial price rebound without any meaningful investor or consumer buying," VTB Capital analyst Andrey Kryuchenkov said. "Major players will remain on the sidelines for now. European investors would be putting money into blue-chip equities, while with improving risk sentiment there is even less incentive to invest in gold."
"The Fed is still likely to continue with QE3 tapering at its current pace which still makes dollar-denominated gold less attractive in the second half of 2014."
Nonfarm payrolls increased 217,000 last month, the Labor Department said on Friday, against expectations for a 218,000 rise, while data for March and April was revised to show 6,000 fewer jobs created than previously reported.
The dollar initially fell after the report as U.S. Treasury yields dipped, but later rebounded. European shares extended gains after the data, while U.S. stocks rose at the open. [FRX/] [MKTS/GLOB]
Gold posted in its biggest one-day rise since mid-May on Thursday after the European Central Bank unveiled measures to boost the euro zone economy.
The ECB outlined a four-year 400 billion euro ($545 billion) scheme giving banks that have been holding back credit an incentive to boost lending to businesses, and pledged to do more if needed.
The bank also noted that euro zone inflation has been stuck in "the danger zone" below 1 percent since October.
Gold tends to benefit from ultra-loose monetary policy, which cuts the opportunity cost of holding non-yielding assets such as bullion. The scope of the move prompted some traders who had positioned for further losses to square their positions.
Among other precious metals, platinum added to gains after South Africa's AMCU union president said the union's 12,500 rand ($1,200) per month wage demand was "non-negotiable", dashing hopes of a speedy resolution to a five-month strike.
Spot platinum was up 0.5 percent at $1,444 an ounce, while spot palladium was up 0.8 percent at $843.25 an ounce.
"If after further arbitration, the strike is not resolved the government has the option of declaring the strike illegal," HSBC said in a note. "The apparent stalemate has boosted platinum group metal prices but we are mindful that any bearish news could take prices lower, at least in the near term."
South Africa is the world's biggest producer of platinum and second-biggest producer of palladium.
Spot silver was down 0.4 percent at $18.93 an ounce.
(Additional reporting by A. Ananthalakshmi in Singapore; Editing by David Evans and Pravin Char)