Gold prices dropped following mixed job report data, fueling continued debate about the size of the interest rate cut expected from the US Federal Reserve (Fed) during its September meeting.

The Bureau of Labor Statistics reported on Friday that non-farm payrolls increased by 142,000 jobs in August, bringing the three-month average to its lowest level since mid-2020.

The US unemployment rate fell to 4.2 percent, the first decline in five months, reflecting a drop in temporary layoffs.

US Treasury yields and the dollar experienced volatility, while gold reversed early gains, declining by 0.6 percent.

Futures traders reassessed their expectations for a half-percentage-point rate cut by the Federal Reserve this month.

Phil Streible, The Chief Market Strategist with Blue Line Futures, noted, "Gold traders are concerned that the Fed might cut rates by only 50 basis points once, which may not be enough to support the gold market." He emphasized that gold needs a series of rate cuts to maintain its upward trajectory.

Federal Reserve officials have shifted their focus from inflation concerns to risks in the labor market. With inflationary pressures easing from their pandemic highs, the Fed is expected to begin cutting rates this month.

John Williams, president of the New York Federal Reserve, stated that current conditions favor rate cuts, highlighting progress in controlling inflation and the labor market slowdown.

He noted that the risks to the Fed’s dual mandate, such as price stability and full employment, are now balanced.

Williams later stressed the importance of carefully analyzing economic data, stating that recent figures align with expectations of a slowing economy and labor market.

Gold has risen more than 20 percent this year, buoyed by optimism that the Federal Reserve will adopt a more accommodative monetary policy.

Large-scale buying and strong demand for gold as a safe haven, driven by conflicts in the Middle East and Ukraine, have also supported prices.

Spot gold fell 0.3 percent to USD 2,508.67 per ounce as of 10:21 AM in New York, after reaching its August high of USD 2,531.75.

Meanwhile, the Bloomberg Dollar Spot Index remained stable, silver and palladium prices fell, and platinum held steady.