Gold prices rose on Friday as the dollar came under pressure from clues about the direction of U.S. monetary policy from Federal Reserve Chairman Jerome Powell, which market watchers interpreted as dovish.
The greenback weakened as Powell, speaking in Jackson Hole, Wyoming, said a gradual approach to raising rates remained appropriate to protect the U.S. economy and keep job growth as strong as possible with inflation under control.
"It sounds like the Fed is starting to lean a little bit dovish and that is taking the wind out of the U.S. dollars sail now," said Shree Kargutkar, portfolio manager at Sprott Asset Management.
Spot gold had increased 1.8 percent to $1,206.14 an ounce, heading for a 1.9 percent weekly gain. U.S. gold futures for December delivery settled up $19.30, or 1.6 percent, at $1,213.30 per ounce.
U.S. political uncertainty, heightened by the legal woes of two of U.S. President Donald Trump's former advisers this week, is keeping the dollar under pressure despite tighter U.S. monetary policy, analysts say.
A weaker U.S. currency makes dollar-denominated gold cheaper for holders of other currencies, which could boost demand and prices.
A Reuters survey published on Thursday showed analysts expecting U.S. rates to rise twice more this year and twice next year. The Fed next meets over Sept. 25-26.
Higher rates raise the opportunity cost of holding gold, which can be costly to store and insure.
"Investor appetite for gold has been in the doldrums in recent months. Rate hikes, low inflation, rising equity markets and a strong dollar have significantly diminished the appeal of gold," ANZ analysts said in a note.
"The fall in gold prices could invigorate a pick-up in physical demand. Overall we see gold prices stabilizing at current levels, with the probability of a short-covering rally increasing substantially."
Data on COMEX gold short positions held by speculators will be updated on Friday by the U.S. Commodity Futures Trading Commission.
Last week's data showed hedge funds and money managers raising their net short position for the sixth straight week to another record in the week to Aug. 14.