Gold edged lower on Friday for the third straight session and notched its biggest weekly slide in nearly two months on growing expectations for an increase in U.S. interest rates as soon as next month.
Spot gold was down 0.2 percent at $1,252.1 an ounce, down 1.6 percent this week in its third straight week of losses. U.S. gold futures for June delivery settled down $1.90 at $1,252.90.
New York Fed President William Dudley said on Thursday there was a strong sense among central bank officials that markets were underestimating the probability of policy tightening.
That came a day after the minutes of the Fed's April meeting revealed that most policymakers felt a rate increase might be appropriate as early as next month, sending gold to a three-week low of $1,244. It has since bounced back, as ultra-low yields and concerns over economic growth lent support.
"Those minutes from the last FOMC meeting I think really gave quite a bit of light to the possibility for that June rate hike," said Phillip Streible, senior commodities broker at R.J. O'Brien in Chicago.
"I think that the Fed is now challenged and the market is getting more confident that it's going to happen, provided that the data supports it."
Gold is highly sensitive to interest rates, gains in which lift the opportunity cost of holding non-yielding bullion. The metal has rallied 18 percent this year as investors bet the Fed would hold off from further increases.
The dollar retreated from its highest in nearly two months against a currency basket, but cruised to its third week of gains, keeping up pressure on gold.
"The gold environment now is substantially different from what was apparent several weeks ago, when a weaker dollar and a benign rate environment were providing an element of support," INTL FCStone said in a report. "This is no longer the case."
Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Shares, rose by 4.5 tonnes on Thursday to their highest since November 2013. Streible also said if there was some foul play discovered in the disappearance of an EgyptAir jet this week, that could lead to gold prices rising, spurred by safe-haven buying.
Gold demand in Asia was subdued this week by a firmer dollar and weak seasonal demand in major trading centers. Among other precious metals, silver was up 0.2 percent at $16.51, while platinum was up 1.05 percent at $1,020.13 and palladium 0.6 percent higher at $557.75. Palladium posted the biggest falls this week, down 5.3 percent. A deepening deficit in the palladium market this year was predicted by industry experts gathered for Platinum Week in London.