Gold price drifts lower ahead of jobs data

The price of gold returned to a declining trend on Thursday ahead of crucial US jobs data which would dictate the direction of US monetary policy.

On the Comex division of the New York Mercantile Exchange, gold futures for June delivery in late trade exchanged hands for $1,286.80 an ounce, down $4.00 from Wednesday's close.

As an indication of the uncertainty, volume was particularly thin with less than 100,000 contracts traded, compared average daily volumes on the exchange of around 160,000.

Three disappointing jobs reports in a row – the Fed's key measure in deciding interest rates – have strengthened the hands of supporters of the Fed's economic stimulus program.

But Friday's report for the month of March could show that the weakness was only a temporary setback caused by the weather.

Economists polled by MarketWatch expect the Labor Department on Friday to report a 200,000 gain in new jobs last month, although some put the number much higher.

Any big surprise to the upside would be bad for gold and may prompt a rethink from US Federal Reserve chair Janet Yellen who on Monday again made very dovish comments at a Chicago about the bank's quantitative easing program:

"This extraordinary commitment is still needed and will be for some time, and I believe that view is widely shared by my fellow policy makers."

Monetary expansion, particularly since the financial crisis, has been a massive boon for the gold price. Gold was trading around $830 an ounce when previous chairman Ben Bernanke announced QE1 in November 2008.

The QE program together with other stimulus measures saw the balance sheet of the Fed cross the $4 trillion mark in January, up 400% in seven years.

Gold and the US dollar usually moves in the opposite directions and gold's perceived status as a hedge against inflation is also burnished when central banks flood markets with money.

The price of gold slid close to 28% in 2013 – the worst annual performance since 1980 – in anticipation of an end to the ultra-loose monetary policy, but has enjoyed 7% gains in 2014.

Gold is off more than $90 an ounce from its 2014 high struck in mid-March, but Chinese buyers appear to have returned to the market and hopes for an easing of imports of bullion into number two consumer India are rising.