Gold snaps 7-day rally; set for 2nd straight weekly gain

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Gold fell on Friday, snapping a seven-day rally as the dollar steadied, but the metal still looked set to post its second straight weekly gain.

Investors eyed Federal Reserve Chair Janet Yellen's speech just before the stock market close on Friday, where she said an interest rate increase "may be warranted later this year."

At separate events on Thursday, the presidents of the St. Louis Fed and Atlanta Fed said an adjustment away from ultra-loose monetary policy might be needed in light of the U.S. economy's improvement since the 2007-2009 financial crisis.

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Spot gold eased 0.5 percent to $1,198 an ounce. The metal jumped on Thursday to $1,219.40—its highest since March 2—in a knee-jerk reaction to the attacks in Yemen. It later pared gains to close near $1,200.

U.S. gold futures for April delivery settled $5 lower at $1,199.80 an ounce.

Saudi Arabia and its allies launched air strikes in Yemen on Wednesday, rattling wider markets and supporting gold, usually seen as an insurance against risk.

Geopolitics has never been something that could set a trend in gold prices, it only causes a short-term deviation from the existing trend,'' Julius Baer head of commodity research Norbert Ruecker said.

Despite Friday's losses, gold was on track to finish the week up more than 1 percent after its seven-day rally, the metal's longest winning stretch since August 2012.

Gold had gained strength after the Fed sounded cautious at its policy meeting last week about the pace of an interest rate increase, prompting the dollar to fall from multi-year highs.

An aggressive rate-rise path could hurt demand for gold, a non-interest-paying asset.

Investor caution over the price rally was evident as SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, continued to post outflows. Holdings fell nearly 6 tonnes on Thursday to 737.24 tonnes, the lowest level since January.

Physical demand across Asia slowed this week as the long rally in prices discouraged buyers.