Market players kept their guards up as they await the US labor data report, a strong reading of which could urge the Federal Reserve to increase interest rates this month – a decision that would be bearish for non-interest bearing gold.
The yellow metal was little changed in the earlier session with the European Central Bank keeping its rates at their current level.
"A good jobs figure could help cement the case in investors' minds for a June or July Fed rate hike. This would likely weaken gold and the $1,200 an ounce level could be tested," a bank analyst stated. "A hard break may be only temporary as long term the outlook for gold is positive."
Spot gold closed the last trading session up $2.70 at $1,210.50 per ounce. The instrument fluctuated between $1,207.70 and $1,211.50 before the close.
“Tonight’s non-farm payrolls is the next key price sensitive economic release, which should keep traders relatively sidelined in the interim,” according to market experts.
Analysts estimate resistance at $1,220 and support at $1,200, explaining that if the support level is exceeded there will potentially be further stop-loss selling pressure, which would place $1,180 on the table.
A series of services PMI is due from Eurozone countries and the United States, as well as trade balance, ISM non-manufacturing PMI and factory orders later on Friday. However, the focus will be the US May payrolls report.
The US jobs data has improved significantly since the Federal Reserve announced that most of its members were getting more comfortable with a June interest rate increase.
Noting a growing labor market and indications of inflation, several Federal Reserve members stated that if positive data continued, interest rate normalization would be convenient.
Yet, only 21 percent of investors anticipate a rate increase in the upcoming weeks despite hawkish comments from the policy board, according to reports.
“Considering the resilience of the US economy, the perceived probability of a June rate increase of 20.6 percent is too low – although we do not believe the Fed will raise rates this month. We think that this will gradually rise ahead of the June 14-15 meeting, which should in turn exert downward pressure on gold,” a market analyst explained.
In a preview of the jobs data, the US ADP non-farm employment change for May was at 173,000, in line with estimates of 174,000. The official figure is seen to post nearly 160,000 jobs added in May.