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Gold futures settle little changed on Fed outlook, Greece

Gold
Anthony Bradshaw | Digital Vision | Getty Images

Gold held near a three-week high on Friday and was set for a second weekly gain, bolstered by the U.S. Federal Reserve's caution on an interest rate rise and worries over Greece, even as a recovering dollar capped gains.

Spot gold was up 0.05 percent at $1,201.50 an ounce in choppy, thin trade after notching its biggest daily increase since mid-May on Thursday.

Prices are up 1.8 percent this week, the biggest weekly increase in over a month.

U.S. gold futures for August delivery settled little changed at $1,201.90 an ounce, near Thursday's almost four-week high.

"We're sandwiched between resistance at the 200-day moving average and support at the 100-day moving average," said Howard Wen, precious metals analyst at HSBC Securities in New York.

Gold rallied on Thursday on a softer dollar after Fed policymakers said a rate increase would be appropriate only after further improvement in the labor market and greater confidence that inflation would rise.

"The boost that gold got from a more dovish Fed this week slightly improves the technical picture," ActivTrades chief analyst Carlo Alberto de Casa said.

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Noninterest-paying gold has benefited from a record-low rate environment following the 2007-2009 financial crisis. Higher rates would increase the opportunity cost of holding the metal.

Gold in euro terms was trading around 9 percent lower than a near two-year peak hit in January.

Bullion has garnered some support from investors worried over a euro zone crisis. Athens and its international creditors remained deadlocked over a debt deal. Euro zone leaders will hold an emergency summit on Monday to try to avert a Greek default after bank withdrawals accelerated.

Investor positioning remained bearish, with assets of top gold-backed exchange traded fund SPDR Gold Trust at its lowest since 2008 and speculators increasing short positions.

Read MoreFed on track to hike rates, despite caution on economy

Asian physical demand was also sluggish as a tight price range and higher stock market yields kept consumers away.

In China, prices on the Shanghai Gold Exchange fell to a discount of up to $2 an ounce to the global price from a premium of between $1 and $2 on Thursday.

Silver was down 0.4 percent at $16.09 an ounce, while palladium lost 1.9 percent to $705.25 after hitting a 16-month low.

Platinum was up 0.1 percent at $1,082.24.