Gold turned lower on Friday, ending a two-day bounce up from the lowest level in nearly six years, on the firm dollar and comments from a Federal Reserve policy maker who said the U.S. central bank should "soon" be ready to raise interest rates.
"We hope that relatively soon we will become reasonably confident that inflation will return to our 2 percent objective," said William Dudley, the influential head of the New York Fed.
was down 0.4 percent at $1,077.29 an ounce, while U.S. gold futures for December delivery settled down $1.60 an ounce at $1,076.30. The metal is set to end the week down a shade after prices jumped 1.1 percent on Thursday.
Gold prices were pressured by Dudley's comments as well as the firm U.S. dollar, said Eli Tesfaye, senior market strategist for brokerage RJO Futures in Chicago.
"I don't see a lot of downside pressure here but I don't see any bullish factor to get this going either," Tesfaye said, remarking on the session's relatively sideways move.
"The market hasn't found any decisive direction."
Bullion prices were firm earlier, when expectations that the Fed will take its time raising rates prompted a wave of short covering after prices hit near six-year lows.
The market had become over extended on the downside after falling to its lowest since February 2010 at $1,064.95 an ounce on Wednesday, analysts said. A suggestion in the minutes of the Fed's last meeting that the bank would move cautiously on rates prompted the short covering.
Speculation that the Fed will lift interest rates for the first time in nearly a decade this year has intensified since the release of strong U.S. jobs data earlier this month, which triggered a sharp drop in gold prices.
Higher rates tend to weigh on gold, as they lift the opportunity cost of holding non-yielding assets, while boosting the dollar.
That is likely to keep up pressure on gold, which has fallen more than 5 percent this month and is down 9 percent so far this year.
In Asia, Chinese banks are growing alarmed by a rising number of defaults among jewelry manufacturers, prompting them to review new gold lending more carefully, according to sources with direct knowledge of the issue.
Palladium bucked the day's trend and was up 3.2 percent at $553.50 an ounce, bouncing up from Thursday's nearly three-month low.