LONDON - The price of gold collapsed this week close to five-year lows, punished by mounting speculation of a US Federal Reserve rate hike later this month.

Gold nosedived to $1,046.43 per ounce on Thursday, touching the lowest level since early February 2010, as the stronger dollar dented demand.

Upbeat non-farm payrolls data on Friday reinforced expectations of a December 16 Fed rate increase, dealers said.

"Gold has been taking a hammering on increasing expectations of a December rate rise in the United States," Sucden analyst Kash Kamal told AFP.

The US economy pumped out 211,000 new jobs in November, the Labor Department said, a solid figure that supports the Fed starting to raise rates this month.

"This number just solidifies the rate hike for December and therefore gives us the down side on gold that I expect in the medium term," said analyst James Hughes at trading firm GKFX.

The unemployment rate held at a seven-year low of 5.0 percent, and job creation numbers for the previous two months were revised upward, more indication that the US economy remains strong despite the global slowdown.

"Another strong jobs report from the US today has all but guaranteed a Fed rate hike on 16th December," agreed Oanda analyst Craig Erlam.

"The mild reaction in the markets reflects the fact that this rate hike is almost entirely priced in."

The stronger greenback meanwhile makes dollar-priced gold more expensive for buyers using cheaper units. In turn, that tends to dent demand and weigh on prices. "It's mainly the movement in the US dollar that has driven gold over the last few days," added Hughes.

"The US rate hike is US dollar positive so it will continue to be the driver of gold."

He predicted that gold could strike $1000 early next year, against a backdrop of rising US borrowing costs.

At the same time, however, economic uncertainty could also attract safe-haven investors.

"If the markets starts to panic a little then we could see it driven back higher by safe haven demand, as always," he said.

"Overall we are looking at the negativity continuing, in my opinion, with rates driving the story. It's all a US dollar story."

Fed chief Janet Yellen this week expressed caution over divergent global monetary policies, with the European Central Bank cutting rates but the Fed seemingly heading for a hike.

"Yellen's comments ... continue to support the view that a rate hike is coming this month," added Sucden analyst Kamal.

"Investors are paying close attention to her terminology, and with sound bites like the US economy is 'doing well' and a rate rise remains 'a live option', gold has seen substantial outflows."