Spot gold was little changed at $4,181.59 an ounce by 0833 GMT, although the metal had shed more than two per cent for the week. US gold futures edged 0.2 per cent higher to $4,212.
Market attention was firmly focused on the September US payrolls report, due at 1230 GMT, as investors looked for fresh clues about the direction of US monetary policy and the outlook for interest rates.
“Gold finds support ahead of the NFP report after a softer than expected PCE inflation print led to pared-back Fed rate hike bets,” said Nikos Tzabouras, a senior market analyst at Jefferies-owned Tradu.com.
The latest inflation data offered some relief to markets, with figures released on Wednesday showing that US inflation rose less than economists had expected in August.
The softer reading prompted traders to scale back expectations for another interest-rate increase by the US Federal Reserve. According to the CME FedWatch Tool, markets were pricing in only about a 26 per cent chance of a rate hike this month, sharply lower than the roughly 70 per cent probability seen earlier in the week.
Payrolls in Focus
The employment report is expected to provide another important signal for policymakers as they weigh inflationary pressures against signs of strength or weakness in the US economy.
A Reuters survey of economists showed that nonfarm payrolls were expected to have increased by 90,000 in September, compared with 162,000 jobs added in August.
The Federal Reserve's policymakers have also remained divided over the appropriate course for monetary policy. While some officials have argued for waiting for additional economic data before making a decision on another rate increase, others have called for further tightening to bring inflation back towards the central bank's target.
The US central bank raised interest rates for the first time in three years last month.
Dollar, Bond Yields Pressure Bullion
Gold's performance has also been affected by developments in the US currency and government bond markets.
The US dollar was heading for a weekly gain on Friday, making dollar-denominated gold more expensive for holders of other currencies.
At the same time, yields on 10-year and 30-year US Treasury bonds reached their highest levels since 2002 on Thursday. Rising bond yields increase the opportunity cost of holding gold, which does not pay interest.
“Investors are caught between the rising opportunity cost of holding a non-yielding asset as bond yields climb and concerns that increasingly elevated yields, against a backdrop of heavy government debt burdens, may eventually cause something to break,” said Ole Hansen, head of commodity strategy at Saxo Bank.
The competing forces have left investors balancing the pressure from higher yields and a stronger dollar against concerns over the sustainability of elevated borrowing costs and large government debt burdens.
Other Precious Metals
Elsewhere in the precious metals market, spot silver rose 0.6 per cent to $61.21 an ounce, while platinum gained 0.7 per cent to $1,735.90.
Palladium advanced 1.7 per cent to $1,191.20.
Despite the gains recorded on Friday, all three metals were also headed for weekly losses.
The US payrolls figures could therefore prove significant for precious metals markets, with investors watching the data for indications of how the Federal Reserve may approach interest rates in the months ahead.