SINGAPORE: Spot gold rallied 1 percent on Friday as a smooth Spanish bond auction and upbeat US jobs data supported sentiment, but prices were on track for their biggest weekly drop in nearly three months on a year-end flight to cash.
Solid demand for Spain's bond auction on Thursday and data showing US jobless claims at a 3-1/2-year low gave a reprieve to equities and commodities, which have suffered heavy losses this week.
Gold fell for four sessions straight and was headed for a weekly decline of more than 7 percent, its biggest since late September, as funds rushed to liquidate positions with just two weeks left on this year's calendar.
"People prefer to hold cash in hand at the year end," said Dick Poon, manager of precious metals at Heraeus in Hong Kong.
Investors are also concerned that euro zone's problem will drag well into 2012, which may further boost the dollar and depress dollar-denominated commodities, he added.
Spot gold rallied 1 percent to $1,586.59 and traded at $1,585.15 by 0326 GMT, off a 2-1/2-month low of $1,560.36 hit in the previous session.
US gold rose 0.6 percent to $1,587.30.
The Relative Strength Index on spot gold returned to above 30, after dipping below that mark into the oversold territory earlier this week for the first time in more than three years.
The world's largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings fell 1.1 percent to a one-month low of 1,279.98 tonnes on Thursday.
The sharp descent in bullion prices triggered a jump in buying from Asian countries, although a weak rupee depressed interest from India, the world's top gold consumer.
"We saw huge physical demand from Thailand and Indonesia," said a Singapore-based dealer. "But there isn't much demand from India, mainly because rupee is very weak."
Gold bar premiums were steady at $1 an ounce over spot prices in Singapore, but may edge up next week as supply reduces around Christmas holiday, she added.
A record-low rupee has kept local gold prices at lofty levels, depressing buying interest despite the ongoing wedding season.
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