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Dollar rise pushes gold toward biggest weekly fall since May

Key Points
  • Gold prices are on track for their third weekly fall
  • Technical indicators suggest gold will fall further
  • Dollar rises on tax reform, funding bill
  • Market awaits U.S. payroll data at 1:30 p.m. London time

Gold prices steadied on Friday but were on track for their biggest weekly fall since May after progress on U.S. tax reform fueled optimism about the U.S. economy and boosted the dollar, making bullion more expensive for holders of other currencies.

Stronger-than-expected U.S. employment data on Friday also demonstrated healthy economic growth and suggested the Federal Reserve will raise interest rates next week, as expected.

Spot gold was up 0.13 percent at $1,247.91 an ounce at 11:27 a.m. ET, but remained near Thursday's low of $1,243.71, the weakest since July 26. It had fallen 2.5 percent this week, its third consecutive weekly fall and the biggest since early May.

U.S. gold futures were 0.23 percent lower at $1,250.20 an ounce.

"You can put it down to the strength of the dollar and the ebullience of investors regarding equities and all things risk-on," said ETF Securities analyst Martin Arnold. "When in such a positive mindset investors don't look for defensive assets like gold."

Wall Street was set to open higher on Friday after the U.S. jobs data. Selling of gold was triggered this week after it broke below $1,260, the bottom of its trading range since September, and plunged below its 200-day moving average for the first time since July.

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Technical support is now at $1,250 and a Fibonacci level at $1,240.90 but momentum indicators suggest that gold could fall to $1,204.90, the July low, said analysts at ScotiaMocatta.

However, ETF Securities' Arnold said prices were supported Korea and the Middle East, and a potential correction in equity valuations. He said gold's fair value was $1,260-$1,280.

Gold is traditionally seen as a safe investment in times of uncertainty. The U.S. Fed is expected next week to announce a rise in interest rates and offer guidance on the pace of further increases. It has previously forecast three rate hikes in 2018. That is likely to pressure gold prices because rising interest rates push up bond yields, reducing the appeal of non-yielding gold, and tend to boost the dollar.

Among other precious metals, silver was up 0.58 percent at $15.817 but down nearly 4 percent this week.

Platinum was down 0.75 percent at $885.20 an ounce and on track to fall 5 percent this week, its biggest weekly loss in nine months. Palladium was 1.06 percent lower at $1,003.90 an ounce.