Gold fell on Friday, but rebounded sharply off a 4-1/2 month low after U.S. data showed job market growth has slowed, suggesting the Federal Reserve may retain its monetary stimulus in the near term.
Bullion rebounded 1.5 percent, or around $25 an ounce, from its session low near $1,625, after a Labor Department report showed that U.S. employers kept their pace of hiring steady in December and fell short of the levels needed to bring down the country's swollen unemployment rate.
The U.S. jobs data pointed to lackluster economic growth in 2013, which is likely to prompt the Fed to keep its asset purchase program in place, analysts said. And that increased gold's appeal as a hedge against inflation caused by money printing by central banks. (Read More: Economy Adds 155,000 New Jobs; Rate Holds at 7.8%)
"Investors think that the payroll report is still not enough to change the Fed's accommodative policy, which is a positive for gold," said Howard Wen, metals analyst at HSBC.
Spot gold was down 0.6 percent at $1,653.60 an ounce. It was down 0.3 percent for the week for a sixth straight week of losses, which would be its longest losing streak since June 1999.
Earlier in the session, gold tumbled to $1,625.79, its lowest price since late August.
Gold's drop came on the heels of a more than 1 percent sell-off on Thursday after minutes from the Federal Reserve showed several officials thought it would be appropriate to slow or stop asset purchases well before the end of 2013. They cited concerns about financial stability and the size of the balance sheet.
The Fed's suggestion of a time frame to end its asset buybacks was enough to send stimulus-friendly gold prices reeling, said Matthew Schilling, commodities broker at futures brokerage RJ O'Brien.
Gold has been particularly sensitive to any indications that the Fed could withdraw its stimulus soon. The U.S. central bank has linked the continuation of its loose monetary policy to evidence of a sustained upturn in the jobs market.
The Fed could be in a position to halt its asset purchases this year if the U.S. economy improves, St. Louis Fed President James Bullard said on Friday.
U.S. gold futures for February delivery settled down $25.70 an ounce at $1,648.90, with volume over 50 percent above its 30-day average, preliminary Reuters data showed.
Physical, ETF Demand Mixed
Physical demand appears mixed during this week's decline.
Sales of U.S. American Eagle gold coins in 2012 were the weakest in five years despite a strong finish. However, dealers said there was brisk buying of the new year's edition in the first week of 2013.
Among gold-backed exchange-traded funds, the No. 1 SPDR Gold Trust reported an outflow of 9.638 tons as of Jan. 3, the biggest one-day decline in its holdings since Sept. 26.
Among other precious metals, silver fell 0.3 percent to $30.04 an ounce. Platinum group metals also pared early losses, with platinum down 0.5 percent at $1,551 and palladium off 0.9 percent at $683.20 an ounce.