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Gold rose above the important psychological level of $1,700 on Friday as the dollar paused while investors awaited key U.S. jobs data, amid expectations the Federal Reserve would continue with steep interest rate hikes in coming months.

Spot gold rose 0.5% to $1,704.40 per ounce by 1116 GMT. The metal was down about 2% for the week so far, having touched a six-week low of $1,687.60 on Thursday.

U.S. gold futures were up 0.4% to $1,715.50.

"The dollar is somewhat lower this morning which is helping gold regain lost ground after yesterday's decline. There might also be some bargain hunting in the market after prices dropped to $1,700," Carsten Menke, an analyst with Julius Baer said.

But overall sentiment in the gold market has turned bearish and prices could easily drop back below $1,700 should the labour market report be better than expected as this would prompt further dollar-driven and sentiment-driven selling, Menke added.

The dollar index dipped 0.3% but was not far from a 20-year peak. [USD/]

After a host of recent U.S. economic data confirmed that its economy was not headed into recession, investors now wait for the nonfarm payrolls report for August at 1230 GMT.

"Gold doesn't have much space for a rebound as markets are pricing in a big increase in interest rates," said Carlo Alberto De Casa, external analyst for Kinesis Money.

"Investors want to understand how hawkish the Fed can be and a solid jobs data will heap more pressure on the central bank to raise rates, which is negative for gold."

Higher interest rates increase the opportunity cost of holding the non-yielding bullion.

In physical markets, gold premiums jumped in top consumer China, while a drop in local prices boosted demand in India. [GOL/AS]

Elsewhere, spot silver rose 0.2% to $17.88 per ounce, platinum gained 0.6% to $833.47, and palladium added 1.8% to $2,048.57