Gold prices rose on Friday, recovering from their lowest in nearly three months hit earlier in the session, after disappointing U.S. payrolls data tempered speculation that the Federal Reserve will raise interest rates any time soon.
Bullion pared some gains, however, after Ukraine and pro-Russian rebels agreed a ceasefire, seen as the first step towards ending a conflict in eastern Ukraine that has caused the worst standoff between Moscow and the West since the Cold War ended.
U.S. employers hired the fewest number of workers in eight months in August and more Americans gave up the hunt for jobs, providing a cautious U.S. central bank with more reasons to wait longer before raising interest rates.
"The higher gold prices are reflecting the expectation the Fed will not immediately raise interest rates after the weak job numbers, but the ceasefire deflated safe-haven appetite somewhat," said Alfonso Esparza, senior currency strategist at online forex broker Oanda in Toronto.
Spot gold was up 0.4 percent at $1,266.05 an ounce by 2:21 p.m. EDT (1821 GMT), having earlier risen as high as $1,273.45.
In overnight trade, the metal hit $1,256.90, its lowest since June 11. Gold prices posted a 1.6 percent drop for week on economic optimism and as the dollar rallied, marking their third decline in the last four weeks.
U.S. COMEX gold futures for December delivery settled up 80 cents an ounce at $1,267.30, with trading volume about 10 percent below their 30-day average, preliminary Reuters data showed.
The U.S. Labor Department said nonfarm payrolls rose 142,000 last month, the smallest increase in eight months.
U.S. short-term interest rate futures contracts rose after the report, leading traders to boost bets the Fed will not raise interest rates until the second half of 2015.
In the main physical gold markets, where demand has been soft in recent months, buying picked up slightly. Asian dealers said premiums in China, the top buyer of gold, rose to $4 to $5 an ounce above spot prices, from $3 in the previous session.
However, SPDR Gold Trust, the world's largest gold-backed exchange-traded fund and a good measure of investor sentiment, said its holdings fell 4.78 tonnes to 785.73 tonnes on Thursday - the biggest one-day drop since April 16.
Among other precious metals, silver was up 0.6 percent to $19.12 an ounce, while platinum edged down 0.2 percent to $1,401.80 an ounce and palladium gained 0.4 percent to $887.25 an ounce.