Gold held just below session highs on Friday as weaker-than-expected US non-farm payrolls data stoked fears the recovery of the world's largest economy is losing momentum. US employers added just 88,000 jobs last month and the jobless rate ticked lower by one tenth of a point to 7.6 percent. A Reuters poll predicted an increase of 200,000 jobs.
Gold rose to a session high of $1,571.91 immediately after the US data release and was at $1,565.61 by 1555 GMT, still down about 2 percent on the week and heading for its second week of declines. It fell to a 10-month low at $1,539.74 on Thursday, hurt by a jump in the dollar after the Bank of Japan unveiled ambitious monetary stimulus plans. US gold futures for June delivery were up 0.8 percent to $1,563.30 an ounce.
"The data took everybody by surprise and gold jumped on that number and that tells us the economy is still pretty soft, suggesting that the Fed will continue with its bond buying programme as scheduled," Societe Generale analyst Robin Bhar said. "But this is only one number, so I'll be a bit cautious in reading too much into it and it will be interesting to see how far the gold rebound can go," he added. "It already looks like its meeting resistance and it may backtrack just as quickly."
An improving growth trend in the United States has been a key driver for investors taking on more risk this year. But the poor US jobs report along with downbeat economic indicators in the manufacturing and service sectors earlier this week should ensure that the Federal Reserve's quantitative easing policy will be in place for some time, analysts said.
Accommodative monetary policies favour gold as low interest rates encourage investors to put money into the non-interest-bearing assets, while weighing down on the dollar. Investor interest continued to recede on Thursday, with bullion holdings in major gold exchange traded funds dropping to their lowest level since August 2012. Hedge fund manager John Paulson's gold fund notched double digit losses during the first three months of 2013.
"Crucially, investor confidence in gold is at rock bottom with little chance of a sustained recovery where physical flows are not substantial enough to counter fund liquidations," VTB Capital said in a note. China was absent from the physical market for a Thursday and Friday holiday, adding to the overall weakness in metals. In other precious metals, silver rose 0.5 percent to $27.02, after tumbling to its lowest level since July 24 in the previous session. Platinum, which dropped to its lowest since late August on Thursday, was up 0.1 percent at $1,521.74. Palladium reversed earlier gains to trade down 0.2 percent at $722.50.