Gold rose on Thursday on short-covering before a US employment report and after comments from the European Central Bank chief boosted expectations of an interest rate cut. Bullion buying took off after ECB President Mario Draghi said the euro zone economy was likely to shrink next year as it has in 2012, and downside risks to growth prevailed for the region battered by a prolonged debt crisis.

The metal rebounded from the previous session's one-month low but gains faced resistance from technical selling around its 100-day moving average near $1,700 an ounce. Sharp losses in euro and crude futures also limited gold's gains. Funds have been liquidating of late as open interest in US gold futures, a gauge of market activity, fell to a three-month low. "The loss of all of this open interest signals the institutions are moving to the sidelines until after an announcement on the 'fiscal cliff'," said George Gero, vice president of RBC Capital Markets, referring to talks aimed at resolving a potential US budget crisis at the year-end.

Spot gold was up 0.3 percent at $1,699.05 an ounce by 3:34 pm (2034 GMT). US COMEX gold futures for February delivery settled up $8 an ounce at $1,701.80, with trading volume around 25 percent below its 30-day average, preliminary Reuters data showed. Among other precious metals, silver was up 0.4 percent at $32.98 an ounce. Platinum rose 1.1 percent to $1,593.49 an ounce, while palladium climbed 1.5 percent to $692.50 an ounce.

Copyright Reuters, 2012