LONDON: Gold steadied above a two-month low on Friday after a five-day losing streak and was headed for its biggest weekly loss in five, hurt by strong US economic data and speculation that the Federal Reserve could hike interest rates sooner than expected.
Bullion was hit hard after minutes from the Fed's July meeting on Wednesday showed policymakers debated whether interest rates should be raised earlier given a surprisingly strong job market recovery.
The metal came under pressure on Thursday when a break below the 200-day moving average of $1,284 an ounce triggered stops losses - automatic sale orders placed by traders at pre-set levels to limit losses - and sent prices tumbling more than one percent.
Spot gold was up 0.3 percent at $1,281.20 an ounce by 0916 GMT, not far from a two-month low of $1,273.06 hit on Thursday. The metal is down nearly 2 percent for the week, the biggest drop since the week ended July 18.
US gold futures gained 0.5 percent to $1,281.90.
The dollar hovered below its 2014 peak against a basket of major currencies ahead of an eagerly awaited speech by US Federal Reserve Chair Janet Yellen at the annual gathering of central bankers in Jackson Hole, Wyoming.
Any further strengthening of the US currency is likely to add pressure to gold, as it would make the metal more expensive for holders of foreign currencies.
But a dovish speech from Yellen, who had in July stressed that there was still a significant slack in labour markets, would counter this week's Fed minutes that showed policymakers debating whether rates should be raised earlier or not.
Higher interest rates would dull the attractiveness of non-interest-bearing assets such as gold. "Yellen's Jackson Hole is going to be a dominating story as it comes at a sensitive time for Fed communication given that the minutes had a slightly more hawkish tinge," Macquarie analyst Matt Turner said.
"However, Jackson Hole speeches are not the most obvious place to communicate a change in policy so we shouldn't expect it to be a major event."
Data on Thursday showed US home resales raced to a 10-month high in July, while the number of Americans filing new claims for jobless benefits fell last week signalling strength in the economy, dulling gold's appeal as an alternative investment. Physical markets failed to provide any significant support for gold as demand in major consumers China and India remains weak.
Analysts, however, expect buying from India to increase heading into the festival and wedding season, when it is traditionally considered auspicious to buy gold.
"Lower gold prices are coming at an opportune time for the Indian market which is on the cusp of its seasonally busy period," UBS said in a note.
Silver rose 0.7 percent to $19.51 an ounce, having touched a two-month low of $19.25 in the previous session. Spot platinum snapped a nine-day losing streak, its longest since July 2008, up 0.7 percent to $1,422.25 an ounce.
Spot palladium, which hit a 13-1/2 year high of $900 earlier this week before falling back, was up 0.5 percent to $878.30 an ounce.
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