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Gold drops 1% after strong US payrolls data dampens rate-cut hopes

Gold fell 1% on Thursday as stronger-than-expected U.S. payroll data cemented expectations that the Federal Reserve is unlikely to cut interest rates as early as previously anticipated, denting the metal's appeal.

As of 1303 GMT spot gold was down 1% at $3,325.48 an ounce, while U.S. futures gold were down 0.7% at $3,336.00.

Bureau of Labor Statistics of the Labor Department reported that non-farm payrolls grew by 147,000 last month. Economists surveyed by had predicted payrolls to rise 110,000.

A stronger dollar makes bullion more expensive for overseas buyers. The better-than-expected jobs numbers mean we are less likely to see the Fed cut rates sooner than anticipated. The dollar has strengthened, which puts pressure on the gold market, said David Meger.

The key is that any idea or possibility of an interest rate cut in July is off the table.

Investors now expect a Federal Reserve rate cut of 53 basis points by the end the year starting in October. This is down from the 66 basis point estimate prior to the report.

Gold that does not yield tends to do well in an environment of low interest rates.

A trade agreement was announced between the United States of America and Vietnam on Wednesday, ahead of the deadline for U.S. Tariffs to go into effect on July 9.

Republicans in the U.S. House of Representatives are advancing Trump's massive spending and tax-cut bill that could add up to $3.4 trillion dollars to the national debt to a final vote.

Carsten Menke is an analyst with Julius Baer. He said that as the US debt continues to rise, investors may become more worried about the US dollar. This should help gold on a longer-term basis.

Silver spot fell 0.2%, to $36.51, platinum dropped 2.9%, to $1376.80, and palladium lost 2.3%, to $1128.78. (Reporting by Anushree Mukherjee in Bengaluru; editing by Philippa Fletcher)

(source: Reuters)