Gold steadied on Friday, set for its biggest weekly gain in a month after fresh European efforts to resolve the region's debt crisis gave investors more confidence to move out of the relative safety of cash ahead of key U.S. jobs data.
The gold price has risen by 1.7 percent so far this week, its largest weekly gain since September, buoyed in large part by a surge in consumer demand that materalised with last month's 10.9 percent drop below $1,700 an ounce.
The dollar eased ahead of Friday's monthly U.S. employment report, which was forecast to show a modest increase in the number of workers on non-farm payrolls data in September, following a month of no growth in August.
Gold rose 0.1 percent to trade at $1,651.39 an ounce by 0944 GMT, having touched an intraday high of $1,665.99 earlier, while U.S. December gold futures GCv1 were flat on the day at $1,653 an ounce.
What you're seeing is demand for physical metal continues to be very, very strong. China was off all this week. They'll be back next week and I presume demand will only increase, so I think that is why the market has held so nicely around this $1,600 mark, said MKS Finance head of trading Afshin Nabavi.
The market was extremely bearish in the dollar and extremely bullish on precious ... It's not a one-way street all the time. We needed a correction and don't forget we are talking about less than $300 in a commodity that was priced close to $2,000, he said.
I still wouldn't mind seeing it have a bit more of a correction on the downside first to clean up some of the spec length over the market and towards the end of the year, it will be closer to $2,000 again, he added.
Premiums for physical delivery in Asia have risen to their highest levels since the start of the year, reflecting an increase in demand for metal in a key-consuming region, with jewellers in China, Indonesia, Vietnam and top consumer India entering the market.
Following an outflow of nearly half a million ounces of gold from global exchange-traded funds in September, when the price fell by more than 20 percent from a record $1,920.30, ETFs have recovered nearly a quarter of that metal as investors have also taken the opportunity to buy at lower levels.
The European Central Bank's decision on Thursday to leave interest rates unchanged at 1.5 percent but anchor short-term borrowing costs for banks and sovereign borrowers by providing additional cash to the market has soothed some of the recent alarm about the impact of the euro zone debt crisis on the broader financial sector.
European stocks held broadly steady on Friday morning, as losses in banking shares were offset by gains in the energy and commodity sectors, although anticipation ahead of the U.S. jobs report kept investors cautious across markets.
The payroll number will be a driver of trade today, but will jostle metals prices only if it's significantly far from expectations, said Tom Pawlicki, precious metals and energy analyst at MF Global.
Technical factors have been slightly positive recently, but have been slow to create any upside. The bullish focus for the market today will rest on payrolls, recapitalisation of European banks, and on generally slow economic growth.
In other precious metals, silver was down by more than half a percent at $31.72 an ounce, while platinum rose by 0.6 percent on the day to trade at $1,514.49 an ounce.
Platimum has lost more than 16 percent over the last month and the price has tumbled to its lowest in nearly two years, after evidence of a slowing euro zone economy, upon which platinum relies for industrial demand, raised fears of another slide into recession.
Palladium was down by more than 1.3 percent on the day at $594.72 an ounce and was set for a 1.8 percent drop on the week and its fifth consecutive weekly loss.