Gold prices held just below $1,200 an ounce in Europe on Friday, little changed from the previous session, as the dollar stayed in a holding pattern ahead of hotly awaited U.S. non-farm payrolls data later in the day.
Spot gold was bid at $1,194.75 an ounce at 1152 GMT (7:52 a.m. EDT), against $1,193.10 late in New York on Thursday. U.S. gold futures for December delivery eased $2.40 to $1,196.90.
Payrolls data due at 1230 GMT (8:30 a.m. EDT) is expected to show U.S. employment fell for a second month in July. A poll of 75 economists forecast payrolls slipped 65,000 after dropping 125,000 in June.
The data is likely to impact the dollar and risk appetite in the wider markets. Gold, which can be bought as a haven from volatility in other markets, often benefits from heightened risk aversion.
Very positive data could be negative for gold, but the dollar relationship (is key), said RBS analyst Daniel Major.
Traditionally, gold and the dollar trade inversely, with weakness in the U.S. unit lifting gold's appeal as an alternative asset and making dollar-priced commodities cheaper for holders of other currencies.
That relationship broke down earlier this year as both gold and the dollar benefited from risk aversion.
We saw that negative correlation shift to a positive correlation between the dollar and gold since January, up until the last few weeks, said Major. Gold is going to fall back more into its traditional relationship with the dollar.
The U.S. unit held near a 3-1/2-month low versus a currency basket ahead of the data, which is expected to underline the fragility of the labor market. Currency and gold traders steered clear of big positions before the numbers.
A violent breach of $1,200 is likely to depend on how close to expectations the payrolls are, said VTB Capital in a note. It would be primarily driven by the investor community seeking to protect themselves against economic headwind in addition to some short covering.
A very negative number would send gold rallying, otherwise we could stall here and see a pullback to $1,180, it added.
A Federal Reserve monetary policy meeting next week is also in focus, as a spate of weak economic data has strengthened the argument the Fed may have to take further steps to boost the economy.
A poor number today will intensify market perceptions that the Federal Reserve will look to introduce further stimulus measures next week at its next policy meeting, said CMC Markets analyst Michael Hewson in a note.
Among other commodities, crude prices held below $82 a barrel as investors awaited the data to gauge the demand outlook from the world's biggest oil consumer, while wheat prices extended this week's stellar gains to 25 percent.
Physical gold demand remained firm in India, with a stronger rupee cushioning local buyers from the impact of rising dollar prices. Buying is expected to continue ahead of a festival season starting with Raksha Bandhan on August 24 and continuing until Dhanteras in November.
Recent outflows from gold exchange-traded funds also seemed to have stalled on Thursday, with holdings of the largest, New York's SPDR Gold Trust, rising for the first time since mid-July.
Silver was little changed, in line with gold, at $18.30 versus $18.31. Data showed holdings of the world's largest silver ETF, the iShares Silver Trust, fell more than 30 tonnes to 9,151.03 tonnes on Thursday.
Elsewhere platinum was at $1,563 an ounce against $1,566.75 and palladium at $486.50 versus $492.20.
(Reporting by Jan Harvey; Editing by Anthony Barker)