Gold tried for gains after it dropped to its lowest in more than two months on Thursday as investors waited to see whether U.S. jobs figures could put the Federal Reserve on track to raise interest rates.
Ahead of Friday's closely watched non-farm payrolls report for August, U.S. data on Thursday showed initial claims for state unemployment benefits rose less than expected last week, pointing to sustained labour market strength.
Gold mining companies saw shares rise 3.43 percent.
"Generally speaking the U.S. economy seems to have improved over the past few weeks and the interest rate expectations have risen quite significantly," Commerzbank analyst Daniel Briesemann said.
"Gold could fall below $1,300, even if the market is pricing in good jobs data tomorrow."
An upbeat payrolls report would reinforce the view that a U.S. rate increase is likely before the end of the year after Fed Chair Janet Yellen said on Friday that the case for higher rates was strengthening.
On Wednesday Boston Fed President Eric Rosengren said the Fed should consider that quicker interest rate rises over time could stave off risks to the economy, while Chicago Fed President Charles Evans said he was increasingly convinced that U.S. economic growth had slowed permanently.
Gold is highly sensitive to rising U.S. interest rates, which increase the opportunity cost of holding the non-yielding asset while boosting the dollar, in which it is priced.
"Technicals show that gold and silver prices need some correction and will see some mild rebound. But Friday's jobs data is going to be crucial," said Jiang Shu, chief analyst at Shandong Gold Group.
"If the jobs data is going to be good, gold will fall to $1,260-$1,270 levels as markets will hope for a rate hike in September."
Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, posted the first monthly dip for four months in August. They fell 1.27 percent to 943.23 tonnes on Wednesday and were down 1.6 percent for the month.
In other precious metals, silver gained 1.16 percent at $18.83 an ounce.
CORRECTION: Spot gold's session low was $1,301.91. An earlier version misstated that figure by one cent.