Gold jumped 1 percent on Friday after U.S. non-farm payrolls data for April came in weaker than expected, boosting expectations the Federal Reserve will delay further interest rate increases.
Bullion prices pared gains later in the session as the U.S. dollar turned higher against a basket of major currencies and New York Fed President William Dudley told the New York Times that two rate hikes in 2016 remain a "reasonable expectation."
The Labor Department report showed the U.S. economy added 160,000 jobs in April, the fewest in seven months, and Americans dropped out of the labor force in droves, signs of weakness that cast doubts on whether the Fed will lift rates before the end of the year.
Spot gold hit a high of $1,295.70 an ounce after the data and was up 0.8 percent at $1,287.92 an ounce. It was on track to close the week down 0.5 percent in sharp contrast to last week's biggest increase since early February.
U.S. gold futures for June delivery settled up 1.7 percent at $1,294 an ounce and last traded up 1.43 percent at $1,290.50.
Spot prices are up 21 percent this year on expectations the Fed will delay further rate hikes. Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding bullion.
"The report won't satisfy the Fed's criteria for hiking rates in June and is another disappointment for markets," said Royce Mendes, director and senior economist at CIBC Capital Markets in Toronto, in a note.
"With consumption expected to rebound in the second quarter, the Fed should be in a position to raise rates again in September." U.S. short-term interest rate futures contracts rose after the payrolls data, suggesting traders see a better chance the Fed will wait longer to act.
"Anybody who was thinking there was going to be a June rate hike is probably going to be disappointed," Citi analyst David Wilson said. Stock markets worldwide dipped after the data, which added to economic growth concerns, and short-dated Treasury yields sank.
Investor sentiment toward gold showed signs of optimism. Assets of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose to the highest in over two years on Thursday at 829.44 tonnes.