Gold Settles at $1,725 to Post Slim Weekly Gain

Gold fell on Friday as investors took profits after an initial rally driven by growing confidence that Greece was edging closer toward winning a new rescue package.

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Bullion rose earlier in the session as buying sentiment gained a boost from news China's central bank might have used some of its massive foreign reserves to import gold late last year.

The metal, however, fell along with the euro and U.S. equities due to jitters ahead of a critical Monday meeting of euro zone finance ministers to finalize the Greek bailout deal. The associated uncertainty prompted some investors to close out positions before the U.S. Presidents Day holiday on Monday.

"Gold cannot seem to break away from the influence of the wider financial markets," said James Steel, chief commodity analyst at HSBC.

"The eventual settlement of the euro zone sovereign debt crisis should eventually break this link. Until then, gold trading is likely to be volatile and prone to chase euro zone and especially Greek headlines," Steel said.

Spot gold

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[XAU=  Loading...      ()   ] was down 0.3 percent at $1,723.20 an ounce.

The metal eked out a 0.2 percent gain for the week, its first rise in three weeks, driven by optimism surrounding Greece and the euro zone debt crisis earlier this week.

U.S. gold futures

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[GCCV1  Loading...      ()   ] settled down $2.50 at $1,725.90 an ounce.

Trading volume was 40 percent below its 30-day average, and on track to be the lowest since Monday.

The metal largely ignored news that overall U.S. consumer prices rose in January, boosted by a surge in gasoline costs. The 0.2 percent increase in the consumer price index shows inflation remains largely under control.

Gold's recent tight correlation with the euro means the gyrations in the single currency are exerting a greater impact on bullion than its traditional safe-haven appeal.

The metal gained earlier after a top Chinese government think-tank source said China's central bank, flush with foreign reserves, may be behind the surge in the country's gold imports late last year.

Spot gold is up around 10 percent so far this year, inspired largely by the Federal Reserve's signal that U.S. rates are unlikely to move beyond zero for some three more years, which prompted talk of more gold-bullish quantitative easing.

Investment buying was strong, as data showed holdings of gold in exchange-traded products have risen by over 100,000 ounces this week to 70 million ounces.

Gold Charts Show Weakness 

Mark D. Arbeter, chief technical strategist at S&P Capital IQ, said gold and silver were susceptible to further losses after they had posted lower highs, especially if the U.S. dollar rallied.

Arbeter said gold could test major chart support between $1,640 and $1,650 an ounce, and must rise above recent highs at $1,766 for its uptrend to resume.

Platinum

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[XPT=  Loading...      ()   ] was the strongest performer of the precious metals complex so far on Friday, up 0.6 percent at $1,629.99 an ounce, boosted by supply worries.

Palladium

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[XPD=  Loading...      ()   ] fell 0.9 percent to $685.47 an ounce, while silver

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[XAG=  Loading...      ()   ] dropped 0.8 percent to $33.20 an ounce.