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Gold futures spike above $1,300 in post-settle trade

A Jordanian goldsmith places gold chains for display at his jewelry shop in Amman, Jordan.
Muhammad Hamed | Reuters
A Jordanian goldsmith places gold chains for display at his jewelry shop in Amman, Jordan.

Gold rose more than 1 percent on Friday, trading above $1,300 in post-settle trade.

Gold was supported by a softer dollar and cautious interest rate comments by a voting U.S. Federal Reserve policy member, and was headed for a third week of gains. The U.S. dollar made its biggest drop against a basket of major currencies in two weeks, making dollar-denominated assets such as gold cheaper for holders of other currencies.

Spot gold was up 1.5 percent at $1,298.21 an ounce. Bullion has risen 1.5 percent so far this week.

U.S. gold for August delivery settled down 0.3 percent at $1,294.80 an ounce, well below Thursday's peak of $1,315.55, the highest since August 2014. It last traded up 0.25 percent at $1,301.60.

"Gold is reverting to its safe-haven role, in a situation where euro zone government bonds are in negative yield territory and investors have fewer safe assets to choose from," Mitsubishi Corp strategist Jonathan Butler said.

St. Louis Fed President James Bullard said the central bank's "dot plot" of projected interest rate policy "appears to be too steep."

"Fed funds futures markets do not seem to believe it. They are priced for a much shallower pace of increases," Bullard said, arguing that the central bank may need to only increase rates once between now and the end of 2018.

Gold is highly sensitive to rising interest rates, which lift the opportunity cost of holding the precious metal.

"His comments were clearly bullish," said Bill O'Neill, co-founder of commodities investment firm Logic Advisors. "A July rate hike is virtually out of the question. I think gold is looking at that."

Traders said that market dealings could be volatile next week ahead of the June 23 referendum when Britain will vote on whether to remain in the European Union or to leave.

The Bank of England escalated its warnings about fallout from the vote, saying it could harm the global economy and that sterling looked increasingly likely to weaken further if "Leave" wins.

"Over the next week until the British referendum, there could be a further upward move in gold ... as investors will use it as a hedge against various financial risks," Commerzbank analyst Daniel Briesemann said.

Reflecting renewed optimism towards gold, holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose to 902.53 tonnes on Thursday, the highest since October 2013.

Silver futures fell 0.49 percent to $17.52 an ounce after falling 2 percent on Thursday. Platinum futures fell 0.7 percent to $971 and palladium futures fell 0.08 percent to reach $534.50.