By Frank Tang and Jan Harvey
NEW YORK/LONDON (Reuters) - Gold prices rose on Thursday after two days of losses as traders added positions ahead of Friday's key U.S. nonfarm payrolls report, which will be closely watched for clues on whether the Federal Reserve will keep trimming its bond-buying stimulus.
Bullion climbed even as data showed U.S. weekly jobless claims fell last week and planned layoffs hit a 13-1/2 year low in December, adding to a string of recent data that have suggested the economy is gaining steam.
Analysts said that possible disappointment over Friday's jobs data could give gold a boost in the short term. However, the precious metal is likely to remain under pressure this year after the Fed opted to cut its monthly asset purchases by $10 billion in December.
"Gold is currently lacking the investor psychology and strong demand for commodities as an asset class that drove prices to $1,900 an ounce. I don't see them returning any time soon in 2014," said Bill O'Neill, partner of commodities investment firm LOGIC Advisors in New Jersey.
Spot gold was up 0.2 percent at $1,227.86 an ounce by 3:22 p.m. EST (2022 GMT).
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U.S. Comex gold futures for February delivery settled up $3.90 an ounce at $1,229.40, with trading volume about 20 percent below the 250-day average, preliminary Reuters data showed.
Friday's nonfarm payrolls are expected to show an increase of 196,000 in December, according to a Reuters survey of economists, slightly below November's 203,000 count.
Gold has risen nearly 2 percent this month on a combination of losses in global stock markets, fund buying related to index rebalancing and Chinese physical demand.
Bullion was also underpinned by a pause in the dollar's rally versus the euro following cautious comments made by European Central Bank President Mario Draghi after the bank left interest rates at record lows.
GOLD ETF'S OUTFLOW
The world's largest gold-backed exchange-traded fund, New York's SPDR Gold Shares, reported its first outflow of the year yesterday, of 1.5 tonnes, taking its holdings to a five-year low of 793.121 tonnes.
Last year the fund saw an outflow of more than 550 tonnes, the first year its holdings had fallen since its launch in 2004.
Bank of America Merrill Lynch said on Thursday it has cut its 2014 gold price forecasts by 11 percent to $1,150 an ounce, and its silver price forecasts by 21 percent to $18.38.
The U.S. bank said that its bearish view is driven by the challenging macro-economic environment, which is best captured by rising U.S. 10-year rates and a persistent lack of inflation pressures.
Among other precious metals, silver was up 0.3 percent to $19.55 an ounce. Platinum edged up 25 cents at $1,413.75 and palladium eased 25 cents at $733.25.
(Reporting by Jan Harvey; editing by Jason Neely, David Evans and Meredith Mazzilli)