Gold rebounded 1 percent in Europe on Friday as physical buyers in particular took advantage of the previous day's price fall to buy into the market, with traders now looking ahead to a key U.S. jobs report due later.
Spot gold was bid at $1,211.40 an ounce at 0959 GMT against $1,198.65 late in New York on Thursday, having earlier risen as high as $1,213.25 an ounce. U.S. gold futures for August delivery added $5.50 to $1,212.20 an ounce.
Gold recorded its biggest one-day fall in five months on Thursday, sliding nearly 4 percent to a five-week low, as funds sold bullion to cover losses in other markets like equities.
Afshin Nabavi, head of trading at MKS Finance, said demand for physical gold at lower prices had been very, very good.
We had a big correction, but there has been no change of the fundamentals, political or economic, he said. It's a good opportunity to take up some gold.
Other markets also recovered after Thursday's broad-based sell-off. European shares bounced back from a three-day drop, with miners higher after Australia dumped its proposed super profits tax on the sector for a lower resource rent tax.
The dollar steadied after steep losses the previous day on growing concerns about the U.S. economy, while the euro retreated after rising more than 2 percent on Thursday.
Among other commodities, oil prices steadied near $73 a barrel after sliding to a three-week low on Thursday, while base metals like copper and zinc also bounced back from losses.
The financial markets are now looking ahead to the widely anticipated U.S. June non-farm payrolls numbers due at 1230 GMT. They are forecast to have dropped by 110,000 last month after increasing 431,000 in May.
Non-farm payrolls could change everything, said Nabavi. If it's as expected, (gold) could break $1,220.
INDIAN BUYING PICKS UP
Holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, eased a touch on Thursday for the first time in nearly a month. They remain near record levels, however.
SPDR saw its biggest percentage inflow in the quarter to end-June since the record-breaking first three months of 2009, according to data released by the fund, though the pace of growth slowed toward the end of the quarter.
Analysts say demand for the metal as a haven has softened as concerns over the financial health of the euro zone, the main price driver for gold earlier in the year, have diminished.
The dampening of this variable, at least in the short term, has temporarily eroded some of gold's safe haven desirability, said UBS analyst Edel Tully in a note.
Lower prices attracted Indian buyers back to the market, however, with gold traders in the world's biggest bullion consumer picking up bargains ahead of a second round of festivals starting August.
We priced in more than 300 kgs of gold since yesterday evening, said an official with a state-run bank bullion dealing bank. Everybody is coming, be it domestic trader, exporter.
Among other precious metals, silver was at $18.03 an ounce versus $17.75, platinum was at $1,509.50 versus $1,501 while palladium was at $430 versus $430.50.
Platinum group metals markets are digesting news of flat U.S. auto sales in June, as major automakers said they saw no sign of the definitive second-half recovery the battered industry had expected early in the year.
(Additional reporting by Jan Harvey; Editing by Keiron Henderson)