By Jan Harvey
LONDON (Reuters) - Gold steadied on Friday after a two-day drop as traders took to the sidelines ahead of a U.S. payrolls report which will be closely watched for clues about the timing of a Federal Reserve interest rate rise.
A stronger than forecast number could boost expectations that the Fed is likely to increase rates in the near term, which could weigh on gold. The metal benefits from ultra-low interest rates, which cut the opportunity cost of holding bullion while also putting pressure on the dollar.
Spot gold was at $1,123.26 an ounce at 1144 GMT, little changed from $1,124.85 late on Thursday. U.S. gold futures for December delivery were down $1.70 at $1,122.80. The metal is on track to fall for a second week.
The payrolls data, due at 1230 GMT, is expected to show the U.S. economy produced 220,000 new jobs last month, according to a Reuters poll of economists.
"A surprise in either direction would obviously impact the euro/dollar, and gold as well," Commerzbank analyst Daniel Briesemann said.
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"A robust labour market report could mean that the Fed may hike interest rates even twice this year, whereas a weak report could mean there'll be no rate hike at all."
Expectations for a September rate rise have been lowered recently due to global market volatility.
World shares slid towards their fourth weekly loss in five on Friday, on caution ahead of the jobs data. The dollar fell against the euro and the yen.
The absence of Chinese buyers also weighed on gold, with markets in the major bullion consumer closed this week for public holidays.
Gold prices in India swung to a discount to the global benchmark this week for the first time since mid July as a weak monsoon dampened demand in the world's second-biggest consumer.
"Although August bullion imports were high, demand in India appears to have stalled," HSBC said in a note. "China's markets are closed for the rest of the week ... Without two key physical markets it will be tough for gold to rally."
Other data showed sales of gold coins and minted bars at the Perth Mint dipped in August from a nine-month high in the previous month.
Among other precious metals, silver was down 0.7 percent at $14.66 an ounce. Platinum was down 0.4 percent at $996.75 an ounce, while palladium was up 0.7 percent at $577.25 an ounce.
(Additional reporting by A. Ananthalakshmi in Singapore; editing by David Clarke and David Evans)