Gold inched higher on Friday as investors judged that a sell-off sparked by a rise in U.S. interest rates this week had run its course and the dollar weakened, making bullion cheaper for holders of other currencies.
Spot gold rose 0.08 percent to $1,254.50. Earlier in the session, it hit $1,251.05, its weakest since May 24. The metal has fallen about 1 percent so far this week.
U.S. gold futures for August delivery settled up $1.90 at $1,256.50.
The dollar index firmed after data showed the number of Americans filing for unemployment benefits fell more than expected last week.
Gold was on track for a second weekly loss and has fallen more than 3 percent from a high of $1,295.97 on June 6 as investors braced for the U.S. Federal Reserve to raise interest rates and signal its policy outlook on Wednesday.
Bullion is sensitive to higher interest rates because they push bond yields higher, increasing the opportunity cost of holding non-yielding gold, and tend to boost the dollar.
"Gold has been spooked by the hawkish tone from the Fed which triggered some long liquidation both in futures and exchange-traded funds," said Saxo Bank analyst Ole Hansen.
Meanwhile, holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 1.5 percent to 27.4 million ounces in the week to Thursday. Fears of more rate hikes to come this year were heightened on Thursday by strong U.S. economic data.
But Hansen said a consistent run of strong data would be needed to give direction to the market.
"Until we get that gold will trade sideways with probably a slight negative bias," he said.
Technical support for gold was around the 100-day moving average at $1,246-$1,250, Alex Thorndike, a trader at MKS PAMP, said in a note.
Among other precious metals, spot silver was headed for its biggest weekly decline in six weeks. The metal gained 0.5 percent at $16.84 per ounce, after hitting $16.64 in the previous session, its weakest since May 19.
"Price action in both gold and silver of late seems to imply that traders still have plenty of short-term long positioning on their books," said Jeffrey Halley, senior market analyst at
OANDA.
"It may leave both metals vulnerable to a further washout into the weekend if the U.S. dollar strength persists."
rose 0.47 percent to $924.30 per ounce. The metal had hit its lowest in more than one month on Thursday.
Meanwhile, dropped 0.22 percent to $868.10 per ounce, as it moved towards its first weekly decline in four weeks.