Gold prices edged lower in Asian trading, retreating after two consecutive days of gains as investors sharply reduced their bets on an interest rate cut by the Federal Reserve in December.
Demand for safe-haven assets was affected by the broad recovery in global stock markets, following positive results from market leader Nvidia.
The focus is now entirely on the US non-farm payrolls data due later today, which is expected to provide further clues about the labor market.
Ongoing concerns about excessive fiscal spending in the developed world provided some support for gold, particularly as Japanese government bond yields continued to rise. The escalating diplomatic row between China and Japan also boosted demand for safe-haven assets.
Spot gold fell 0.2% to $4,070.27 an ounce, while December gold futures contracts declined 0.3% to $4,069.09 an ounce by 08:15 Saudi time.
Gold's rally stalled as bets on an interest rate cut in December receded.
Gold's rally stalled on Thursday after the precious metal had added more than 1% over the previous two sessions.
This comes amid declining confidence that the Federal Reserve will cut interest rates in December. This reached a peak on Wednesday, when minutes from the Fed's October meeting showed a growing divide among policymakers over whether interest rates should be cut further.
Markets now point to a 21.5% probability that the Federal Reserve will cut interest rates by 25 basis points at its December 10-11 meeting, roughly half the 42.4% probability that was forecast on Wednesday, according to the CME Fedwatch Index.
The Federal Reserve is expected to enter its December meeting without a clear view due to the delay in official economic data resulting from the prolonged government shutdown, making a cautious approach more likely.
However, a prolonged period of high US interest rates tends to put pressure on non-yielding assets such as gold.
Other precious metals rose on Thursday after losses in the previous session. Spot platinum climbed 0.8% to $1,560.13 an ounce, while spot silver held steady at $51.3415 an ounce.
Watch for the jobs data for further insights
The focus is now entirely on the release of the highly anticipated US non-farm payrolls data for September, due later today.
While this data is unlikely to influence the Federal Reserve's December decision, it is expected to provide crucial insights into the labor market. The release of this data was delayed due to the prolonged government shutdown, and government officials have indicated that October's jobs report is unlikely to be released at all.
A range of private readings, along with unemployment claims data released this week, indicate that the U.S. labor market continues to weaken. This trend could set the stage for a potential interest rate cut by the Federal Reserve, given that preventing further labor market deterioration is a key priority for the central bank.
However, persistent inflation is expected to prevent the Federal Reserve from significantly easing monetary policy.
