Gold Trades at Lowest Level Since Mid-October

Gold hit three-and-a-half week lows on Monday after a surprise surge in U.S. jobs growth reignited speculation the Federal Reserve could soon start scaling back its monetary stimulus programme, denting bullion's appeal.

The U.S. central bank could start cutting back on its $85 billion monthly bond purchases as early as next month, analysts said. Some, however, expect the cutbacks will start next year.

An end to the Fed's quantitative easing programme is expected to hurt assets such as gold, which has been boosted by central bank liquidity and low interest rates.

Spot gold hit its lowest since Oct. 17 at $1,278.94 an ounce in early trade, after losing 1.5 percent in the previous session, its biggest one-day fall in about a month. It was down 0.5 percent at $1,282.41 an ounce at 1500 GMT.

Comex gold futures for December were down $2.80 to $1,281.80 an ounce.

"The dollar index is still holding fairly firm, and given the lack of physical interest or significant investor demand near new lows, there is very little upside for the market," VTB Capital analyst Andrey Kryuchenkov said. "Gold continues trading with macro headlines and against the greenback."

Uncertainty remains over when the Fed will begin to rein in its quantitative easing, he added: "Statements from the FOMC (Federal Open Market Committee) have been fairly cautious or even dovish, but data continues to question the Fed's current accommodative stance ...Policymakers can afford to wait a little longer, but pressure is growing."

The dollar eased against a basket of currencies, but remained near Friday's two-month high, set after a key U.S. employment report showed employers added 204,000 new jobs in October, soundly beating forecasts.

That has helped reignite concerns about an imminent tapering of the Fed's stimulus measures. Expectations for such a move have pushed gold prices down more than 20 percent this year.

PHYSICAL DEMAND STILL WEAK

Gold's recent drop to below $1,300 has failed to attract demand in Asia as buyers wait on the sidelines on expectations that prices will weaken further.

Dealers in Hong Kong said there was no strong pick-up in demand and premiums remained stable at about $1.50 an ounce.

Prices have to fall towards $1,200 an ounce for demand to increase, one dealer said.

Another dealer said weakness in regional currencies against the U.S. dollar was also curbing demand.

Premiums on the Shanghai Gold Exchange increased only slightly to about $5 an ounce from $4 on Friday.

Spot silver fell 0.6 percent to $21.34 an ounce, having fallen to a three-and-a-half-week low of $21.21 in earlier trade.

Spot platinum dropped 0.7 percent to $1,428.74 an ounce, having touched a 3-1/2 week low of $1,420.20. Spot palladium fell 1 percent to $748.50 an ounce.

Platinum's premium over gold reached a 2-1/2-month high at $155 an ounce, as gold prices fell.