Gold rose on Thursday on short-covering ahead of a key U.S. nonfarm payrolls report and after comments from the European Central Bank's chief boosted expectations of an interest rate cut.
Bullion buying took off after ECB President Mario Draghi said the euro zone economy was likely to shrink next year as it has in 2012, and downside risks to growth prevailed for the region battered by a prolonged debt crisis.
The metal rebounded from the previous session's one-month low but gains faced resistance from technical selling around its 100-day moving average near $1,700 an ounce. Funds have been liquidating of late as open interest in U.S. gold futures, a gauge of market activity, fell to a three-month low.
"The loss of all of this open interest signals the institutions are moving to the sidelines until after an announcement on the 'fiscal cliff'," said George Gero, vice president of RBC Capital Markets, referring to talks aimed at resolving a potential U.S.budget crisis at the year-end.
Spot gold was up 0.4 percent at $1,699.71 an ounce. U.S. COMEX gold futures for February delivery settled up$8 an ounce at $1,701.80, with trading volume set to finish below its 30-day average, preliminary Reuters data showed.
The metal also tracked gains in U.S. equities after data showed the number of Americans filing new claims for unemployment benefits last week fell back to the pre-Superstorm Sandy range.