Gold firmed on Wednesday as the dollar and U.S. bond yields retreated after below-forecast U.S. jobs data, but was still near a four-month low on investor caution ahead of a European Central Bank meeting and a payrolls report.
U.S. companies hired 179,000 workers in May, marking the lowest monthly increase since January and missing market expectations. Economists surveyed by Reuters had forecast the ADP National Employment Report would show a gain of 210,000 jobs in May.
"There is no point looking at this number in isolation ... let's take the week as a whole... there are more important things like the ECB tomorrow and the nonfarm payrolls," Societe Generale analyst Robin Bhar said.
"So yes gold is up on this but for how long? I would still want to sell the rally," he added. "I don't think it changes the mood of the market, and basically we are going lower."
A Reuters survey of economists forecast that employers probably added 218,000 jobs to their payrolls last month. While that would be step down from April's robust 288,000 job gain, it would still be above the average for the preceding six months.
Spot gold edged up 0.1 percent to $1,245.70 an ounce by 1421 GMT. The metal hit a four-month low of $1,240.61 on Tuesday, before closing flat, snapping a five-day losing streak.
U.S. gold futures for June delivery were up $1.10 an ounce at $1,245.60.
The dollar cut earlier gains to trade 0.1 percent higher against a basket of currencies, as U.S. borrowing costs retreated slightly. The U.S. 10-year Treasury yields was around 2.57 percent, having climbed almost 20 basis points over the past three sessions.
Returns on U.S. bonds are closely watched by the gold market, given that the metal pays no interest.
In other markets, global shares fell before Thursday's European Central Bank meeting. The central bank is widely expected to cut interest rates, including lowering the rate banks are charged for depositing funds with the central bank to below zero.
PHYSICAL DEMAND LACKING
As a gauge of investor interest, holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 1.8 tonnes to 787.08 tonnes on Tuesday.
The inflow could be supportive in the near term, but the fund's overall holdings are still near five-year lows, indicating bearish sentiment, analysts said.
"A resumption of (gold) downward trend has seen net holdings in gold ETFs decline by 39 metric tonnes in the year-to-date," ANZ said in a note.