By Marcy Nicholson and Jan Harvey
NEW YORK/LONDON (Reuters) - Gold bounced up from a two-month low on Friday, on concerns stoked by a Russian report that North Korea is preparing to test a long-range missile and on support from the U.S. dollar's shift into negative territory.
"The Russian report of a looming North Korean missile test that could reach the west coast of the United States combined with a weakening dollar goosed gold from two-month lows," said Tai Wong, head of base and precious metals trading at BMO Capital Markets in New York.
"Gold has slumped 7 percent over the past month, which is making speculative shorts wary at current levels so we may see $1,300 before $1,250."
Spot gold rose 0.4 percent at $1,273.06 an ounce by 2:40 p.m. EDT (1840 GMT). U.S. December gold futures settled up 0.1 percent at $1,274.90.
The dollar index <.DXY> fell from a 2-1/2-month high.[USD/]
"The dollar's initial gains evaporated as market participants made a more sober assessment of the jobs report and realized that the sharp rise in average hourly earnings may have been driven by a sizeable drop in low-paid and hurricane-hit jobs rather than an actual rise in earnings," said Fawad Razaqzada, technical analyst for Forex.com.
"As the dollar fell, buck-denominated precious metals went up in value."
Earlier, bullion fell to a two-month low at $1,260.16 an ounce on an upbeat reading of the U.S. unemployment rate and wage growth last month that supported expectations for a further U.S. interest rate hike in December. This pushed the dollar and Treasury yields higher. [FRX/]
Gold prices have fallen 0.5 percent this week and are facing their fourth straight week of decline, the metal's longest run of weekly losses this year.
Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Shares , have fallen 13.6 tonnes so far this week, their first weekly outflow in nine weeks and the largest since late July. [GOL/ETF]
Demand for physical gold in India improved slightly this week because of a correction in local prices, but restrictions on the industry and increased smuggling took the sheen off the bullion market. [GOL/AS]
Silver was up 1.1 percent at $16.75 an ounce, after falling to a two-month low at $16.30. Platinum was down 0.03 percent at $910.75 an ounce, after falling to the lowest since July 12 at $899.50.
Palladium was down 2 percent at $920.25 an ounce, maintaining its premium over platinum, which it moved into last week for the first time since 2001. The spread between the two reached more than $34 an ounce earlier on Friday.
(Reporting by Marcy Nicholson and Jan Harvey Additional reporting by Apeksha Nair and Arpan Varghese in Bengaluru; Editing by Dale Hudson/Jeremy Gaunt)