NEW YORK Gold fell 1 percent on Friday as a disappointing U.S. jobs report spurred deflation fears, prompting investors to turn to the perceived safety of the dollar and sell gold along with commodities and equities.
Bullion is set for a lower weekly finish after data showed U.S. nonfarm payrolls grew at a less-than-expected pace in June. [ID:nL2E8I56V0] A nearly $3 drop in crude oil and a one-percent slide on Wall Street stirred fears of a global economic slowdown which have recently heavily pressured gold prices.
"It looks as though gold is just reacting to the dollar trade and weaker prices across the board, and commodities may be creeping in deflationary scares, which are weakening gold," said Carlos Perez-Santalla, precious metals broker at PVM Futures.
Even though economists said the report would push the Federal Reserve closer to additional monetary easing, which should help gold, a sharp sell-off in riskier assets across the board more than offset any hopes of Fed action for now.
Spot gold was down 1.2 percent at $1,585.36 an ounce by 11:36 a.m. EDT (1536 GMT), on course for a weekly fall of 0.8 percent.
U.S. gold futures for August delivery were down $23.80 at $1,585.60 an ounce.
Silver fell 2.1 percent to $27.08 an ounce.
Bullion briefly turned higher after the report showed job creation during the month wasn't enough to bring down the U.S. unemployment rate at 8.2 percent, as it fueled concerns that Europe's debt crisis was shifting the U.S. economy into low gear.
"Certainly it brings up the picture of additional easing discussion if the job number remains weakened, and that alone is enough to buoy gold," said James Steel, chief metals analyst at HSBC.
Gold has been particularly sensitive to central banks' monetary policies. In February, it was up 15 percent for the year after the Fed said it would keep interest rates near zero until late 2014.
On Friday, bullion is only up less than 2 percent.
PHYSICAL DEMAND SLOW
There was little support for gold from the physical market, where bullion demand remained subdued after prices rose above $1,600 earlier this week, with dealers in Asia said to be waiting for a lower price level.
In another sign of weak physical demand, Hong Kong shipped 75,456 kg of gold to mainland China in May, down 26 percent from the previous month, trade data showed.
In platinum group metals, platinum dropped 1.3 percent to $1,447.43 an ounce, and palladium eased 0.5 percent to $583.59.
(Additional reporting by Maytaal Angel in London and Rujun Shen in Singapore; editing by M.D. Golan)