Gold settled nearly 1 percent higher at $1,292.00 on Friday after hitting near three-year lows following its biggest weekly drop in almost two years after the U.S. central bank signaled an end to easy money.
The precious metal rebounded as world shares, bonds and commodities steadied on Friday, a day after a sharp selloff triggered by plans by the Federal Reserve to cut back its quantitative easing program.
But that did little to offset Thursday's 5.4 percent price crash. Gold is down 7 percent since last Friday, its biggest weekly drop since it fell from record highs in September 2011.
Spot gold was up 1 percent at $1,294 an ounce, having earlier hit its lowest since September 2010 at $1,268.89 an ounce.
"Bullion will seek to consolidate near-current lows, but there is little chance for a sustained rebound," VTB Capital analyst Andrey Kryuchenkov said. "We had little evidence of physical buying—spooked market participants will stay away.
"Inflation is subdued, seasonal Asian demand is yet to pick up, the greenback is stronger, the opportunity cost of holding gold will start gaining soon," he said. "Given the macro recovery, equities will still perform better—bullion is not trading as a safe-haven asset. Why hold it at all?"
(Read More: Gold Now at Levels Worse Than April's Big Selloff)
U.S. gold futures were up almost 0.7 percent at $1,295 an ounce after having earlier touched a near three-year low at $1,268.70.
The CME Group, parent of the Chicago Board of Trade, raised initial margins for Comex gold after prices plunged to their lowest in three years on Thursday. Comex gold futures fell 6.4 percent in heavy volume.
The prospect of QE being withdrawn is pushing investors away from gold, analysts said.
"The effects of QE had been hugely positive for precious metals because they weakened the dollar and pushed medium-term interest rates to abnormally low levels, which removed most of the negative carry associated with holding gold," Natixis analyst Nic Brown said.