[LONDON] Gold reversed earlier losses on Friday as the dollar fell after weaker-than-expected US data, but prices remained on course for their biggest monthly decline in more than two years on expectations the Federal Reserve will soon raise interest rates.
A US government index on employment costs rose less than forecast. "There is no wage inflation in the US and that was the trigger for the sharp move in the euro/dollar rate, which is in turn lending support to the entire commodity sector," Commerzbank analyst Daniel Briesemann said.
Spot gold, lower initially, rose as much as 1.4 per cent to a session high of US$1,103.13 an ounce, before trading up 0.8 per cent at US$1,095.80 by 2:34 pm EDT (1834 GMT).
US gold for August delivery climbed 0.6 per cent to settle at US$1,094.90 an ounce.
Investor confidence was shaken last week with when bullion prices tumbled to a 5-1/2-year low of US$1,077 on July 24. The metal has lost 6.4 per cent so far this month, its steepest decline since June 2013.
The dollar fell as much as 1.1 per cent against a basket of currencies after the data on employment costs.
Figures had shown a second-quarter improvement in US economic growth on Thursday, which led investors to increase bets the Federal Reserve was on track to raise interest rates, possibly at its next meeting in September.
The next crucial data release is US nonfarm payroll figures, due on Aug 7. "If we get a very strong labor market report next week then this gold strength is going to be reversed," Mr Briesemann said.
Waning investment demand and weak physical appetite for gold also pose a further downside risk for prices, said Argonaut Securities analyst Helen Lau.
Investors worldwide pulled US$1.2 billion out of precious metals funds in the week ended July 29, a Bank of America Merrill Lynch Global Research report showed. "Physical demand has been on the low side with premiums in China and India hardly moving," MKS Group trader Jason Cerisola said in a note.
On the Shanghai Gold Exchange, premiums stood at just over US$1 an ounce on the London spot price, traders said.
In other precious metals, spot silver was up 0.7 per cent at US$14.75 an ounce. "Silver might soon be in a shortage as low commodity prices prompt further capital expenditure cuts across primary and secondary mines," said Capital Economics in a note.
Spot platinum fell 0.4 per cent to US$982.25 an ounce and palladium dropped 1.2 per cent to US$611 an ounce.