Gold falls to four-month low, on track for worst week since 2013

By Marcy Nicholson and Jan Harvey

NEW YORK/LONDON (Reuters) - Gold fell for the ninth straight session on Friday, briefly tapping a four-month low as computer-generated selling offset support from weak U.S. payrolls data, but bullion was on track for its biggest weekly drop in more than three years.

A crash in the pound briefly sent gold (XAUGBP=R) priced in sterling to a three-month high. [GBP/]

Spot gold (XAU=) was down 0.09 percent at $1,252.71 an ounce by 3:11 p.m. EDT (1911 GMT), after falling 1 percent to $1,241.20, the lowest since June 8. It was on track to close the week down 4.8 percent, its biggest drop since June 2013.

U.S. gold futures (GCv1) for December delivery settled down 0.1 percent at $1,251.90.

Spot gold's fall below the 200-day moving average on Thursday was "not a good sign," said Bill O'Neill, co-founder of LOGIC Advisors.

"There was a lot of algorithm and computer-generated trading, and that's really was caused all this," he said about the sudden drop to the session low.

Gold prices got an initial boost from news that U.S. employment growth slowed for the third straight month in September and that the jobless rate rose. The slowdown was not expected to prevent the Federal Reserve from raising interest rates later this year, though it curbed speculation about a move as early as next month.

The dollar index (.DXY) is still expected to post its biggest weekly rise since June this week, based on Monday's upbeat U.S. jobs and manufacturing report.

Gold is highly sensitive to rising U.S. interest rates, which increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.

"The majority of the move lower (occurred) on Tuesday ... following hawkish comments by Fed officials ... and a subsequent break of the psychologically and technically important $1,300 level," Goldman Sachs said in a note.

"With prices having corrected sharply, we are broadly neutral on the outlook for gold through year-end, with our forecast of the probability of U.S. rate hikes through year-end roughly in line with market expectations."

Outperforming spot, sterling-denominated gold (XAUGBP=R) was at 1,007.53 pounds an ounce, up 1.3 percent, after surging 6.5 percent to 1,059.06 pounds, its highest since mid-July.

The pound plunged to a 31-year low in a matter of minutes overnight in what traders said was a "flash crash." [USD/]

Spot platinum (XPT=) fell as much as 1.8 percent to a six-month low at $946.40 an ounce.

Silver (XAG=) was up 0.9 percent at $17.43, while palladium was 0.42 percent lower at $664.72.

(Additional reporting by Swati Verma and Nallur Sethuraman in Bengaluru; Editing by Adrian Croft and Richard Chang)