Gold prices rose on Friday, recovering some ground lost in four straight sessions of declines as the dollar fell versus the euro, but they struggled for traction ahead of a key U.S. jobs report due later in the day.
A weaker-than-expected reading of the non-farm payrolls data, one of the most closely watched barometers of the U.S. economic climate, could support expectations the Federal Reserve will have to take steps to further boost growth.
These could include another round of quantitative easing, which is seen as gold-supportive due to the pressure it would exert on long-term interest rates - which would keep the opportunity cost of holding bullion at rock bottom - and the dollar.
"If there is a strong disappointment, there could be a positive reaction in gold, because that would revive speculation that in their September meeting the Fed will implement new measures," Peter Fertig, a consultant at Quantitative Commodity Research, said.
However, a very positive figure could also boost gold if it sparks a broad-based rally in financial markets, he added.
"It could be a win-win situation for gold if it comes significantly above or below consensus," he said. "If it comes at consensus, that could be a negative factor. That would indicate that we would have to wait longer for the Fed to move."
A Reuters survey of economists suggested U.S. employers probably added 100,000 new workers last month, with job growth likely picking up only slightly from the previous month.
Spot gold was up 0.4 percent at $1,596.20 an ounce at 7:40 a.m. EDT (1140 GMT), while U.S. gold futures for December delivery were up $8.80 an ounce at $1,599.50.
The metal is down 1.6 percent this week, on track for its biggest weekly loss in six weeks, having erased most of the gains it made after European Central Bank chief Mario Draghi boosted the euro last week by pledging to do whatever necessary to support the single currency.
Investors hoping for decisive action to combat the euro zone debt crisis were then disappointed by a policy statement from Draghi on Thursday. Some had hoped the ECB would immediately revive a sovereign bond buying program.
A retreat in the dollar helped gold recover some lost ground on Friday. The euro rose 0.8 percent but gains looked fragile after Draghi's speech on Thursday.
"Gold's struggle to get back its $1,600 plus price tag also suggests that despite the recent friendlier investor attitude, there are still many out there who need more convincing," UBS said in a note.
"While this week's price behavior highlights that investors are rather quick to get out, it's important to remember that gold is back to levels it was trading at just last week."
"In our view, our more positive outlook - as reflected in our one- and three-month forecasts - still stands, especially with the potential for central banks to act remaining elevated."
Among other precious metals, silver was up 0.6 percent at $27.26 an ounce.
The gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, rose back to 58.5 on Friday as the grey metal underperformed. Silver is close to its cheapest compared to gold in nearly two years.
The CME Group (CME.O) said it will cut margins for COMEX silver futures for the third time since February to help boost trading interest, as stagnant prices sapped appetite investors.
CME, the biggest operator of U.S. futures exchanges, also said it would cut margins on platinum and palladium futures.
Spot platinum was up 1 percent at $1,390.90 an ounce, while spot palladium was up 1.5 percent at $573.75 an ounce.