Gold turned higher after tapping the lowest level in more than two months on Thursday, as the dollar fell on unexpectedly weak U.S. manufacturing data that raised doubts about the economy's strength.
Gold futures, on the defensive all week on worries that a strong U.S. jobs report Friday might up the odds of Federal Reserve tightening, finally got a reprieve Thursday when a widely followed U.S. manufacturing survey showed surprising weakness.
This led to a bounce in the euro against the U.S. dollar and rally in gold, which tends to move inversely to the greenback.
Other U.S. data showed initial claims for state unemployment benefits rose less than expected last week, pointing to sustained labor market strength.
Investors, however, are now focused on the release on Friday of the U.S. nonfarm payrolls report for August to see whether it will put the Federal Reserve on track to raise interest rates later this year.
"Generally speaking the U.S. economy seems to have improved over the past few weeks and the interest rate expectations have risen quite significantly," Commerzbank analyst Daniel Briesemann said. "Gold could fall below $1,300, even if the market is pricing in good jobs data tomorrow."
Reference: Reuters, KITCO
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