Gold rose on Friday as the dollar came off seven-week highs, while investors awaited U.S. nonfarm payrolls data for clues over the health of the world's largest economy.
A strong jobs report could prompt the Fed to further reduce its bond-buying stimulus and bring forward the day it starts hiking rates. The U.S. central bank last month announced a $10 billion cut to its $85 billion in monthly asset purchases.
Gold had been boosted by central bank liquidity and a low interest rates environment, which encourages investors to put money into non-interest-bearing assets.
"It will take a few more months of good figures in terms of U.S. employment data to see the Fed accelerating the pace of tapering," Natixis precious metals analyst Bernard Dahdah said.
"If the number today significantly exceeds expectations gold may go to $1,200 or slightly below."
Spot gold rose 0.5 percent to $1,233.10 an ounce by 1236 GMT. Prices were however headed towards a 0.3 percent weekly loss, snapping two consecutive weeks of gains.
U.S. gold futures for February delivery were up $3.30 to $1,232.60 an ounce.
In wider markets, the dollar eased from a seven-week high against a basket of currencies, making dollar-denominated gold less expensive for holders of other currencies.
But analysts expect the U.S. currency could easily rebound if data continues to support an improving U.S. economic outlook.
Economic data earlier this week, including weekly jobless claims, has already suggested that the U.S. economy is gaining steam.
Gold lost 28 percent of its value in 2013, ending a 12-year bull run, as worries over a stimulus cut prompted investors to shift money to equities.
But a slow start in the stock markets this year has boosted gold prices to a three-week high on Monday.
LOW PRICE FORECASTS
Analysts' forecasts remain subdued and expectations are mostly for another drop in gold prices this year. Bank of America Merrill Lynch cut its 2014 average price forecast to $1,150, citing an uncertain macro-economic environment and lack of investment demand.
Barclays said it expected gold prices to average $1,205 an ounce in 2014, mostly due to a macro backdrop of modest growth, fewer tail risks, and a stronger dollar increasing the scope for further disinvestment.
In the physical market, Chinese buying picked up on Friday.
Trading volumes for 99.99 percent purity gold contract on the Shanghai Gold Exchange rose to over 16 tonnes from Thursday's 13 tonnes, while premiums climbed to $19 from $17.
Silver rose 1.1 percent to $19.76 an ounce.
Spot platinum was up 0.3 percent at $1,417.50 an ounce.
Palladium was down 0.1 percent at $732.30 an ounce.
Chinese passenger vehicle sales in December 2013 were 1.8 million units, up 21.5 percent year on year, Macquarie said in a report, citing data released on Thursday by CAAM.
Rising Chinese car sales should be good for palladium demand, as the metal is used in the exhaust catalysts of almost all Chinese cars.