Gold reversed losses and rallied on Thursday, set for its largest weekly gain in six weeks, as a decline in the dollar in the wake of downbeat weekly US jobless data gave the bullion prices an extra lift. The US Labour Department on Thursday said weekly first-time unemployment claims had risen to their highest level since January last week, raising concerns that the job market was stalling.
Spanish bond yields this week have leaped to nearly 6 percent, a level perceived to be unsustainable for Madrid to service its debt, after the government unveiled more austerity measures and the head of the central bank warned that the country's commercial banks would need more capital if the economy deteriorates further.
Equities are hovering near three-month lows, while holdings of gold in exchange-traded funds, often seen as a measure of longer-term investment appetite for bullion, held near record highs around 70.3 million ounces.
Gold's correlation with the euro has strengthened to its most positive since the start of the year, meaning that its sensitivity to moves in the single European currency is far greater than it was a month ago.
Spot gold was up 0.9 percent on the day at $1,672.11 an ounce by 1600 GMT, set for a weekly gain of 2.0 percent.
"It's good that gold has bounced back up. I don't expected sustained losses, but neither do I expect sustained gains, because tomorrow you have Chinese GDP data but you also have US inflation and that is going to be closely watched," VTB Capital analyst Andrey Kryuchenkov said.
Many of the more bullish forecasts for gold this year hinge on a central bank policy, particularly by the US Federal Reserve, of not withdrawing the trillions of dollars of extra liquidity that have made cash cheap and kept interest rates low.
Economists polled by Reuters expect the core rate of consumer inflation, which excludes food and energy prices, to have risen by 2.2 percent in March.
"It's a market that is more or less being pinned in dollar terms to the $1,650 level for a while. The next move, I suspect, is going to be higher, but the market is fairly susceptible to headlines at the moment," Credit Suisse analyst Tom Kendall said.
Gold in euro terms is set for a weekly gain of 1.5 percent, having touched its highest in two weeks this week. The price was last up on the day by 0.4 percent at 1,269.42 euros an ounce.
Spot silver, which has fallen in six out of the last seven weeks, was up 2.4 percent at $32.30 an ounce. The gold/silver ratio, which measures the number of ounces of silver needed to buy one ounce of gold, held around 52.5, having risen from closer to 50 a week ago, denoting the outperformance of gold.
Platinum rallied by 1 percent on the day to $1,591.50 an ounce, bringing the percentage price change for the week to a rise of 0.1 percent, while palladium was up 1.7 percent at $643.13 an ounce.
The platinum group metals were unruffled by reports that South African PGM output had nearly halved year-on-year in February, largely because of a stoppage at Impala Platinum's Rustenburg mine through an illegal strike.