Gold reversed earlier losses on Thursday as investors pulled bearish bets ahead of a Comex option expiry and awaited US jobs data later in the day to help gauge the outlook for the Federal Reserve's stimulus measures.
    
The gains, however, were capped by positive housing datafrom the United States that dented bullion's safe-haven appeal and raised fears of an early end to the Fed' stimulus.

A sharp sell-off in gold prices since mid-April has sparked growing interest in using gold options to profit from increased volatility. The open interest in US Comex gold options rose to a record high of more than 1.8 million contracts earlier this week, according to COMEX owner CME Group.

"There is a big open interest around $1,300 and $1,310 which might stall the sell-off," said a Hong Kong-based trader.

Prices tend to be volatile around option expirations as traders position themselves to profit around key price levels.  

Spot gold rose 0.2 per cent to $1,323.01 an ounce by 0420 GMT, after falling as much as 0.4 per cent earlier. Comex gold was up about $3 at $1,322.80.

Traders were also reluctant to take big bets ahead of US weekly jobless claims data to be released at 1230 GMT. Economic data has become a key factor in determining when the Fed would start tapering its $85 billion monthly bond purchases.

Gold had risen nearly 6 per cent for the four sessions through Tuesday - its biggest such rally in 20 months - but fell sharply after data showed new US home sales vaulted to a five-year peak in June.

"The housing numbers yesterday really took the wind out of gold's rally. If the jobless claims numbers are supporting on the tapering side, that will be very bearish for gold," said the trader.
    
Global central banks' stimulus measures have been a key support for gold over the past few years.
    
Bullion has lost more than 20 per cent of its value this year - its worst annual performance since 1997 - on fears of a Fed tapering and rapid outflows from exchange-traded gold funds. - Reuters