NEW YORK (Reuters) - Gold rose on Friday, reversing heavy initial losses as uncertainty over an upcoming rescue plan for Spain's troubled banks encouraged some safe-haven buying and prompted investors to cover their bearish bets ahead of the weekend.
The metal rebounded $30 from its early lows after sources told Reuters Spain is expected to request European aid for its ailing banks at the weekend to forestall worsening market turmoil. Friday is the third consecutive session gold has moved in a $30 range, or wider.
"There is a tremendous amount of fear going into the weekend as to what's going to happen with the bailout on Spanish banks. That is driving people into a safe haven, which gold represents," said Jeffrey Sica, chief investment officer at SICA Wealth Management LLC, which has $1 billion in assets.
"Gold is trading so volatile that smaller moves could be very much exaggerated just based on momentum. We could see it plunge or surge at any given moment," Sica said.
Bullion still looks poised for a 2 percent weekly drop after frustrated investors cut long positions following Congressional testimony by Federal Reserve Chairman Ben Bernanke earlier this week in which he failed to hint at hoped-for further monetary stimulus. The metal staged a 4.3 percent rally last Friday on expected easing after last Friday's dismal U.S. jobs report.
Spot gold was up 25 cents at $1,589.40 an ounce by 1:21 p.m. EDT (1721 GMT), rebounding sharply from a one-week low of $1,561.44 earlier in the session.
U.S. gold futures for August delivery were up $3.20 at $1,591.20 an ounce. Prices at 1:21 p.m. EDT (1721 GMT)
Additional reporting by Silvia Antonioli in London and Rujun Shen in Singapore; Editing by Alden Bentley