Gold was heading for its biggest weekly gain in nine months on Friday as a modest bounce in oil prices boosted the demand for the metal as an inflation-hedge, but investors were nervous ahead of a key US jobs report that could trigger sharp moves.

The US nonfarm payrolls report is keenly watched as a gauge of economic strength and for its impact on the dollar and the Federal Reserve’s monetary policy.

US payrolls report

A strong report could prompt the Fed to raise rates soon and boost the dollar. Investors fear higher rates could dull the appeal of gold, a non-interest-bearing asset.

The report is expected to show that employers added 230,000 new jobs last month, and the unemployment rate remaining unchanged at 5.8 per cent, according to a Reuters poll.

“Should tonight’s numbers exceed 230,000 it could send gold tumbling quickly,’’ said Howie Lee, analyst at Phillip Futures, adding that support could come in at $1,140.

“(A strong report) should set the tone for gold to languish below $1,200 for the rest of the year and leave gold to end the year in red territory.’’

Spot gold

Spot gold slipped 0.2 per cent to $1,202.60 an ounce by 0354 GMT. The metal was set for a 3-per cent gain for the week — its biggest jump since March.

In recent months, strong US data and a robust dollar had pushed gold close to four-and-a-half-year lows. The slump in oil prices to five-year lows has also added pressure.

ECB stimulus

Gold traders were also tracking developments regarding stimulus measures in Europe. On Thursday, the European Central Bank put off until next year a decision on whether to increase its stimulus, a delay that indicated rates will not be pressured lower for the time being.

The resulting rally in the euro knocked the dollar index from a 5-1/2 year high, providing some support to gold. In the physical markets, Chinese buying remained steady with premiums unchanged at about $1-$2 on Friday.

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