LONDON: Gold steadied on Friday ahead of US employment data that could cement expectations for the likely course of Federal Reserve monetary policy, shrugging off the negative impact of a weaker euro after Greece completed a crucial bond swap.
Greece won a strong 85.8 percent acceptance from its private creditors for a bond swap deal which will ease its massive public debt and clear the way for a new international bailout.
But concern over other indebted euro zone states persisted. Greek bonds trading at roughly a fifth of their face value in the grey market highlighted the lack of investor faith in the longer-term health of the Greek economy, pushing the euro down against other currencies.
The main risk event for Friday was US employment data that was expected to show another month of solid growth in job creation, which could add to the growing optimism in the market over the resiilience of the economy's recovery.
Should this result in the dollar gaining more upward momentum, gold will likely come under pressure, analysts said.
Spot gold was unchanged at $1,698.84 an ounce by 1105 GMT, having fallen by 0.7 percent so far this week and set for a second consecutive weekly decline.
Gold's correlation to the euro/dollar exchange rate has touched its highest in over two years this week, meaning the bullion price is more likely respond to fluctuations in the single European currency than risk appetite.
"If we still have this problem in the euro area, and therefore a stronger dollar, it's difficult to see what would make gold push higher, which seems odd because you would want to be buying gold if Europe is still a big risk and the US isn't but that is not how it's been trading," Citigroup analyst David Wilson said.
"The current status quo ... is we have seen some buying on the lower numbers, but it's difficult to see (gold) rebounding significantly," he said.
Economists polled by Reuters expected 210,000 workers to have been added to non-farm payrolls in February, following January's 243,000-increase, while the unemployment rate is forecast to have remained unchanged at 8.3 percent.
The gold price has risen by around 8.6 percent so far this year, building on eleven consecutive years of increases and is up by more than 18 percent in the last year, fuelled by low inflation-adjusted interest rates and trillions of dollars' worth of cheap cash from central banks to prevent the financial system from seizing up as the euro zone debt crisis continues.
Investors interpreted last week's testimony from Fed Chairman Ben Bernkanke on the outlook for the economy as a signal that there was little chance of further liquidity injections in the form of quantitative easing, or government bond purchases, a potential negative for gold.
Ample liquidity tends to anchor interest rates and in the case of US rates, tempers the dollar, thereby giving gold a boost.
Also on the macro front, a string of data showed China's factory output, investment and retail sales slowed in February, while the inflation rate staged an unexpectedly sharp fall to a 20-month low, giving policymakers room to further loosen monetary policy to support slowing growth.
This could benefit gold, which tends to profit from an environment of loose monetary policy.
"A lower headline inflation number means that the central bank can continue to be very accommodative, which means printing more money," said Jeremy Friesen, commodity strategist at Societe Generale in Hong Kong.
"The more money it prints versus the gold out there, the more it should raise the value of gold versus that money."
Demand in Asia cooled on Friday as the gold price nudged at $1,700 an ounce, but consumer buying emerged in the earlier stages of the week when the price held below this level.
Reflecting investor demand for the metal, holdings of gold in exchange-traded products (ETPs) have risen to record highs above 70 million ounces this week.
Spot silver eased 0.1 percent to $33.81 an ounce, keeping the gold/silver ratio, or number of ounces of silver needed to buy one ounce of gold, to 50, broadly unchanged from the start of the week.
Platinum, which has fallen almost 2 percent this week, was virtually unchanged on the day at $1,659.15 an ounce.
The discount of platinum to gold has retreated to around $40 an ounce from closer to $65 an ounce at the start of this week, highlighting platinum's outperformance over gold.
Chinese car sales rose 26.5 percent in February to 1.21 million units, following a year-on-year decline in January.
China is the world's largest car market and a key source of demand for palladium, which is used most heavily in catalytic coverters for gasoline-powered vehicle engines.
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