Gold turned modestly lower on Friday as some players exited positions ahead of a long U.S. weekend, but registered its biggest weekly percentage gain in a month, supported by a drop in stock markets and a softer dollar.
Comments from a Federal Reserve official that dampened talk the U.S. central bank is set to curb monetary stimulus also underpinned gold prices, which stuck to a fairly tight range.
Spot gold was down 0.6 percent at $1,383 an ounce, slightly lower than $1,390 late on Thursday. It remained up 2.15 percent on the week, its biggest weekly rise since late April.
U.S. gold futures closed at $1,386.60 per ounce, down $5.20, or 0.4 percent and held around those levels in after-hours business.
Gold got a boost this week from declining equity markets, which in Europe on Thursday posted their biggest one-day drop in nearly a year. On Friday, U.S. stocks fell for a third day, putting indexes on track for their first negative week since mid-April.
"A weaker dollar combined with continued QE, some physical buying at the lower levels out to China in particular, all of those factors have helped gold in the last few days," said Robin Bhar, metals analyst at Societe Generale Group in London.
QE refers to quantitative easing, or the Federal Reserve's program of buying about $85 billion a month in debt to keep U.S. interest rates low and stimulate the economy.
The dollar extended its decline against the yen and was on track for its biggest weekly loss in three years against the Japanese currency. The euro rose 0.7 percent this week against the dollar, its first weekly gain in three periods.
During the U.S. session, gold ventured into negative regions with some players reluctant to hang onto a long gold position over the extended Memorial Day weekend in the United States, given the latest uncertainty about Federal Reserve policy.
Speculation the Fed would scale back its monetary easing program weighed on gold this week after Fed Chairman Ben Bernanke said the central bank could start scaling back its $85 billion in monthly bond purchases in the next few meetings.
But, St. Louis Fed President James Bullard said on Friday that U.S. inflation would have to pick up before he voted to scale back stimulus.
"There's a lot of uncertainty. There's still no better than 50/50 chance that the Fed will unwind its stimulus or that the economy performs as they expect it will," said Bhar.
A healthier-than-forecast reading on April orders for U.S. durable goods, which range from toasters to aircraft, also knocked gold lower as the need for a safety play eased investor concerns about the U.S. economy. "This week presented something for everyone," Saxo Bank vice president Ole Hansen said. "The bears have not seen any evidence of them being wrong, while the bulls got a bit of safe haven and on balance a rather dovish Bernanke."
"Bottom line, we are still in dangerous territory having failed so far to move back above $1,414. The double bottom which is now in the making might give technical traders some comfort, but for it to be confirmed we ideally need to see a $1,432 print, so it's not yet something to lean against."
Gold Fund Reports Fresh Outflow
Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, reported at the close of Thursday that its holdings had fallen by another 1.5 tons, bringing its total outflow for the week to 19.8 tons.
The fund is on track for its largest weekly outflow since the week ended April 26. At 1,018.567 tons, its holdings were at their lowest in more than four years.
Macquarie said in a note on Friday that ETF liquidation this year had totalled 450 tonnes of gold.
"Given the extent of these outflows - equivalent to mine production from all of Africa and South America during the same period - that the gold price hasn't completely collapsed is testament to strong retail demand (for jewellery, coins and bars)," it said.
"If ETFs continue to leach gold—and despite the outflows over 2,200 tons remain—then gold's price outlook will depend on these retail buyers."
Among other precious metals, silver was last traded 0.7 percent down at $22 an ounce. Silver held near its cheapest versus gold in 2-1/2 years on Friday. Spot platinum was down 0.8 percent at $1,447 an ounce. Spot palladium fell 1.6 percent to $727.