* Payrolls data lifts gold after slide to 4-month low
* Gold in sterling hits three-month high as pound crashes
* GRAPHIC-Gold vs currencies: http://link.reuters.com/cyv95s
* Silver set for worst week since June 2013, down 8 pct (Updates throughout, adds comment)
By Jan Harvey
LONDON, Oct 7 (Reuters) - Gold rose on Friday after U.S. payrolls data missed expectations, weighing on the dollar, but remained on track for its biggest weekly drop this year after an earlier jump in the U.S. currency pushed prices through key chart levels.
A crash in the pound sent gold priced in sterling to a three-month high, meanwhile.
Spot gold XAU= was at $1,263.18 an ounce at 1330 GMT, up 0.8 percent, while U.S. gold futures GCv1 for December delivery were up $12.80 at $1,265.80.
Gold has fallen for the last eight sessions, hitting its lowest since early June on Thursday.
Despite the payrolls data, the dollar index is still set to post its biggest weekly rise since November this week after upbeat U.S. jobs and manufacturing data reinforced expectations the Federal Reserve would lift interest rates this year.
However, the weak payrolls numbers have curbed speculation that the Fed could move as early as next month.
"(The prospect of) a November Fed hike is gone for sure - there was never a strong case due to the upcoming U.S. election anyway," Commerzbank (DE:CBKG) analyst Carsten Fritsch said. "Some bounce looks overdue, but we need to overcome the 200-day moving average, which is currently at $1,260, on a closing basis."
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.
A rise in the U.S. currency pushed it lower earlier in the week, while selling picked up significantly after it broke chart support at $1,300 and $1,280 an ounce.
"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 (NYSE:GS) 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 1,019.83 pounds an ounce, up 2.5 percent, having earlier peaked at 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" driven by computer-initiated sell orders, and growing anxiety that Britain will undergo a "hard" exit from the European Union. FRX/
Silver XAG= was up 1.6 percent at $17.56 an ounce. It is down 8.3 percent this week, its biggest weekly drop since June 2013. Platinum XPT= was up 0.3 percent at $965.85, while palladium was 1.3 percent higher at $676.07.
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http://link.reuters.com/cyv95s GRAPHIC-2016 asset returns:
http://reut.rs/1WAiOSC
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