Gold settled lower on Friday as U.S. equities rebounded but managed to log a second straight weekly gain as concerns over the global economy have raised speculation that the U.S. Federal Reserve could keep interest rates low for longer.
The dollar index rose, and the S&P 500 index gained nearly 2 percent after data showed U.S. housing starts and permits rose in September, a signal the market's modest recovery is supporting what appears to be growing strength in the broader economy.
U.S. equities, however, are set for their fourth straight weekly decline, their longest streak in more than three years, on concerns about the economy and the spread of the Ebola virus.
"Gold has had a good week because just about everything else has had a bad week," Macquarie analyst Matthew Turner said. "The rally has paused today, however, as the wider markets are wondering whether things really are quite as bad as they thought they were yesterday."
U.S. gold futures for December delivery settled $2.20 lower at $1,239.00 in lighter-than-usual turnover, preliminary Reuters data shows, spot gold was flat at $1,238 an ounce.
The metal gained 1.4 percent for the week after reaching a one-month high of $1,249.30 on Wednesday.
The U.S. dollar edged higher against a basket of major currencies on Friday after strong data on U.S. consumer sentiment calmed nerves following a week of severe market volatility.
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Also underpinning gold were Thursday's comments by top U.S. central banker James Bullard that the Fed should keep buying bonds for longer than planned in the face of volatile markets and falling inflation expectations.
Gold has benefited from the low interest rates and central banks' liquidity that have prevailed in the years after the 2008 financial crisis.
Despite Friday's drop, holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.2 percent to 760.94 tonnes, latest data shows.
In spot gold market news, five companies have been shortlisted to replace the century-old London gold benchmark with a new electronic system, which is expected to be in place within the next few months.