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Singapore - Gold fell to its lowest level in nearly three months on Friday before recovering modestly and was poised to post its third weekly drop in four, as a strong dollar and an optimistic view of the US economy prompted selling in bullion.
The metal is under pressure as the euro languished near a 14-month low versus the dollar on Friday, struggling to regain its footing after the European Central Bank delivered a fresh round of stimulus and promised even more if needed.
READ: ECB cuts rates to repel deflation threat
Investors also refrained from taking big positions on Friday as US non-farm payrolls data due later in the day is expected to give further clues about the world's largest economy and the timing of the Federal Reserve's move to raise interest rates.
Spot gold fell to $1 256.90 an ounce - its lowest since June 10, before ticking up 0.2% to $1 263.50. The metal has lost nearly 2% this week.
"The small uptick today is probably some bargain hunting, but the underlying trend is still very bearish, especially with a very strong dollar move," said one Singapore-based precious metals trader.
A stronger dollar is a setback for dollar-denominated gold as it makes the metal more expensive for users of other currencies.
The jobs data today is likely to have a bigger impact on prices depending on how strong it is. A solid break below $1 260 could lead to a sharp drop as the next support level is only at $1 230," the trader said.
Other precious metals were also under pressure due to the dollar move. Silver, platinum and palladium were all poised for weekly declines.
Gold was also hurt after data on Thursday showed that US companies hired workers at a steady clip in August and services sector activity accelerated to a six-and-a-half year high, assurances the economy was on track for sturdy growth in the third quarter.
"The key US payrolls release is expected to be a strong print which may prompt further selling in gold late in the day in today's session," Victor Thianpiriya, analyst at ANZ, said in a note.
SPDR Gold Trust, the world's largest gold-backed exchange-traded fund and a good measure of investor sentiment, said its holdings fell 4.78 tonnes to 785.73 tonnes on Thursday - the biggest one-day drop since mid-April.
In the physical markets, buying picked up slightly due to the lower prices. Premiums in China, the top buyer of gold, rose to about $4 to $5 an ounce from $3 in the previous session.
