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Gold gives up gains as dollar strengthens on US data

 Stacks of cash, dollars USD
Phil Ashley | Getty Images

Gold lost early gains on Friday as the dollar strengthened after strong U.S. economic data suggested a brightening outlook for the economy.

U.S. retail sales jumped 1.3 percent last month, the largest gain since March 2015 and a bigger rise than the 0.8 percent expected by economists.

Strong economic data and the prospect of a rate hike in the next few months should weigh on gold, Citi strategist David Wilson said.

Spot gold, which rose 1 percent in early trade, cut gains to $1,272.26 an ounce, up just 0.72 percent. It had dropped 1.1 percent on Thursday.

That left gold down 1.7 percent this week, the biggest weekly decline since the week ended March 25. U.S. gold for June delivery settled up $1.50 at $1,272.70 and was last up 0.19 percent to $1,273.60 an ounce.

The dollar hit a two-week high against a basket of currencies on Friday, posting its best fortnightly performance since February, making dollar-denominated assets such as gold more costly for holders of other currencies.

The U.S. currency had already received a boost overnight after two U.S. Federal Reserve officials said the central bank should raise rates if data points to an improving economy.

"The move (in the gold price) this year has really been down to the shift in the U.S. policy expectations," Deutsche Bank analyst Michael Hsueh said. "It's more about ... when we start to see a consistent improvement in U.S. data that could push the pendulum the other way and push the dollar higher."

Gold has gained 20 percent this year after a series of weak economic data in the United States and elsewhere eased expectations of a near-term increase in U.S. interest rates.

Higher rates would lift the opportunity cost of holding non-yielding gold.

Reflecting sustained optimism towards bullion, holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, stood at 27.17 million ounces on Thursday, the highest since November 2013.

Technical analysts at ScotiaMocatta said their view on gold is neutral while it trades between the $1,303 resistance level and the $1,256 support.

Spot silver advanced 0.76 percent to $17.09 an ounce, platinum rose 0.48 percent to $1,049 and palladium was down 0.39 percent $590.70.