Gold fell on Friday after data showed the US economy generated fewer than expected jobs last month but enough to send unemployment to its lowest in six months, which boosted the dollar and other risk-linked assets. Spot gold fell 0.3 percent to $1,758.34 an ounce by 1337 GMT, but was set for a gain of 1 percent this week.
"Gold would benefit from the idea of a eurozone break-up. We don't think this is going to happen, but it's certainly not a zero-probability event," said Deutsche Bank analyst Michael Lewis. "The risk for us is we start to see more euro weakness over the next few months, that is probably our main concern," he said.
Gold's inverse relation to the dollar makes it more profitable for non-US holders of the metal to sell it. Greek Prime Minister George Papandreou faces a knife-edge confidence vote later on Friday, with the fate of the nation's bailout in the balance.
Meanwhile, Italy agreed to allow the International Monetary Fund and the European Union to monitor its progress in achieving structural reform as yields on Italian debt stayed near levels believed to be unsustainable for Rome's existing finances.
The European Central Bank delivered a surprise rate cut on Thursday citing slowing growth and raised the chances of the eurozone entering a mild recession towards the end of the year. "There are still more rate cuts to come and the interest rate environment looks pretty constructive towards gold and risk aversion and equity risk premia, which are rising rapidly, continue to be constructive," said Deutsche's Lewis.
According to the US options market, traders are increasing their bets on the price of gold moving lower in the near term, as evidenced by a rise in holdings of put options. Open interest in put options at $1,550 has more than doubled to over 13,000 lots, accounting for more than 13 million ounces of gold, in the last six weeks.
However, the bullish bets put on in September that the gold price would have hit $2,000 or more by November 22, the date of the upcoming options expiry, have only been modestly scaled back and most open interest in call options is centred at $2,000, according to data from exchange owner CME Group. Thailand bought over 15 tonnes, making it the third largest official purchaser of bullion this year.
The price of gold hit a record $1,920.30 an ounce in September before subsiding to current levels. "Gold's price correction in late September probably encouraged more buying, but we do not think price is a very significant factor for central banks who decide to increase their gold holdings - after all, they were also willing takers even when prices were near all-time highs in August," said UBS strategist Edel Tully in a note.
"As gold continues to take its cues from the euro and risk assets, consistent official purchases offers some comfort to investors, as they help provide the yellow metal with underlying support," she said. Silver was down 0.5 percent on the day, trading around $34.27 an ounce, platinum was off 0.4 percent to $1,627.74 an ounce and palladium flat on the day at $652.97.