In early trade on Friday, gold climbed with Wall Street after a stronger-than-expected U.S. nonfarm payrolls report.
Some investors still believe the Federal Reserve may introduce new measures to stimulate U.S. economic growth, which would underpin gold as a store of value. But others see more downside risk if investors need to sell gold to cover margin calls for losses in other financial markets.
"When people need money to answer margin calls, gold is susceptible to liquidity bids from other markets. I don't know if we have seen the bottom put in for gold after this week's reversal," said Jeffrey Sherman,commodities portfolio manager at DoubleLine Capital, which oversees $17 billion in assets.
Gold fell 0.9 percent to $1,633.69 an ounce by 2:27 p.m. EDT. During the session, it traded as high as $1,665.99.
For the week, gold was up around 0.7 percent, its first weekly gain in five weeks. Stronger physical demand boosted gold after the precious metal fell 20 percent from its record of $1,920.30 in early September.
U.S. December gold futures settled down $17.40 at $1,635.80. Trading volume was thin for a third consecutive session, suggesting recent gains could be short-lived.
Silver was down by 2.3 percent at $31.17 an ounce.
Even though U.S. employers hired more workers than expected in September, the unemployment rate remained stuck at 9.1 percent for a third straight month. That kept pressure on President Barack Obama and the U.S. Federal Reserve to do more to spur a stronger recovery.
Michael Lewis, analyst at Deutsche Bank, said the payrolls data was not strong enough to change the low interest-rate environment which has benefited gold.
EUROPE DEBT CRISIS IN FOCUS
Fitch cut Italy's sovereign credit rating by one notch and Spain's by two, citing a worsening euro zone debt crisis.
Strong physical buying by top consumers India and China followed the price correction, which also helped lift prices for the week.
Following an outflow of nearly half a million ounces of gold from global exchange-traded funds in September, ETFs have recovered nearly a quarter of that metal as investors have bought at lower levels.
In platinum group metals, platinum fell by 1.1 percent at $1,489.74 an ounce, and palladium dropped 2.3 percent to $588.25.
Platinum has dropped more than 16 percent over the last month, tumbling to its lowest in nearly two years. Signs of a slowing global economy and weakening industrial demand have pressured platinum, used as an auto catalyst.
by Frank Tang and Amanda Cooper Reuters Oct 7, 2011