Gold heads for weekly drop as strong dollar, elevated Treasury yields weigh

By Noel John

Oct 2 (Reuters) - Gold prices fell on Friday, reversing earlier gains, as a stronger dollar and elevated US Treasury yields weighed on the non-yielding metal, leaving it on track for a weekly decline.

Spot gold fell 0.8% to $4,145.68 per ounce by 11:38 a.m. EDT (1538 GMT), and was down about 3.3% for the week so far. US gold futures were down 0.7% at $4,173.50.

The US dollar edged lower, but was headed for a weekly gain, while yields on 10- and 30-year Treasuries hit their highest levels since 2002 on Thursday. USD/ US/

Bullion fell after gaining over 1% earlier in the session after data showed US job growth slowed more than expected in September.

US non-farm payrolls rose by 29,000 last month after a downwardly revised increase of 133,000 in August, the Labor Department's closely watched employment report showed on Friday. Economists polled by Reuters had forecast payrolls advancing 90,000 after a previously reported 162,000 surge in August.

"Gold bugs are perhaps refusing to get carried away for the time being, knowing that the Fed retains a hawkish bias," said Han Tan, chief market analyst at Bybit.

"In the months ahead, much of gold's trajectory will depend on how much the Fed is willing to tolerate potential labor market weakness, with its eyes firmly set on subduing US inflation."

Bullion has fallen over 20% since the US-Israeli war with Iran began in late February, pressured by expectations that conflict-driven inflation could keep interest rates higher for longer.

The latest softer-than-expected inflation data, along with opposition from at least two top policymakers to another rate hike in October, have strengthened investor bets that the US Federal Reserve will keep rates on hold later this month.

Traders currently see about a 22% chance of a US rate hike this month, compared to around 70% earlier in the week, according to the CME FedWatch Tool.

"The charts still look fairly grim and (gold) could push lower still if the rate cycle resumes its ascent," Marex analyst Edward Meir said.

Spot silver fell 1.1% to $60.17, platinum retreated 1.9% to $1,692 and palladium declined 0.4% to $1,166.25. All three metals were poised for weekly losses.