Gold rallied over 1.5 percent on Friday, its biggest one-day gain since November, as disappointing U.S. job data fueled expectations the Federal Reserve will continue its bullion-friendly bond purchases.
The metal snapped three consecutive days of sharp losses after the Labor Department said U.S. employers in March hired at the slowest pace in nine months, adding just 88,000 non-farm jobs. Heavy gold short-covering and sharp losses in U.S. equities also lifted bullion prices.
The weak jobs data reduced the chance the Fed would alter its current $85 billion monthly purchases of mortgage-backed securities and Treasuries known as qualitative easing in a bid to boost economic growth.
"The payrolls report gives more credence to the idea that we are not going to see any tapering off of QE3. It's just a knee-jerk response, and I don't think it necessarily indicates that the market has bottomed out here,'' said Bill O'Neill, partner of commodities investment firm LOGIC Advisors.
Gold is used by many as a hedge against inflation, which can be brought on by central banks' monetary stimulus. The precious metal still lost over 1 percent for the week for one of its sharpest weekly declines since the start of the year.
Heavy outflows from gold exchange-traded funds and sharp losses of prominent bullion bull John Paulson's gold fund also weighed on investor sentiment.
Gold accelerated gains throughout the session on the payrolls data and was up 1.7 percent at $1,579.60, having earlier hit a high at $1,580.80.
U.S. gold futures settled up $23.50 at $1,575.90 an ounce.
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Trading volume, however, was relatively weak, given the sharp rally. Turnover was at around 200,000 lots, in line with its 30-day average, preliminary Reuters data showed.
Gold's response to the payrolls report was particularly strong because previous advances in the labor market had fueled discussion within the U.S. central bank about whether to cut back the third round of bond purchases, perhaps as soon as this summer.
Year to date, gold is down around 6 percent, at risk of ending its bull run after rising for a 12th consecutive year in 2012.
On Friday, investors in droves bought back their bearish bets, boosting gold prices in a process known as short-covering, analysts said. Fund selling pushed gold to a 10-month low on Thursday on an improving U.S. economic outlook.
Investor interest continued to recede on Thursday, with bullion holdings in major gold exchange traded funds monitored by Reuters dropping to their lowest since August 2012.
Billionaire investor John Paulson told clients on Thursday that most of his portfolios were in the black. His gold fund, however, notched double digit losses during the first three months of 2013.
There was market talk that heavy liquidation in gold ETFs by large hedge funds to meet client redemptions has weighed heavily on the price of gold.