LONDON: Gold fell on Friday, as the dollar extended gains after positive US consumer sentiment data raised uncertainty over the Federal Reserve's monetary easing, but prices were still on track for their second weekly gain.
Gold had gained ground over the past two sessions, hitting a two-week high of $1,421 an ounce earlier, as weak GDP and jobs data on Thursday weighed on the dollar and boosted chances of the Fed continuing its $85 billion in monthly asset purchases and keeping interest rates low.
The US central bank said last week the decision to taper off its monetary easing sooner would be taken in the next few policy meetings, depending on economic data.
Spot gold fell by as much as 1.4 percent to a session low of $1,393.14 an ounce. It then stood at $1,396.90, down 1.2 percent by 1435 GMT. US gold fell 0.3 percent to $1,407 an ounce.
The metal was however still on track for its second weekly gain in a row, up 0.7 percent so far.
"Gold had overcome resistance at $1,400 after weaker-than-expected GDP data on Thursday boosted the prospect of continued monetary easing by the Fed," Mitsubishi analyst Jonathan Butler said.
"Prices have now come off as they respond to dollar's gains," he added.
The dollar index extended earlier upside at 0.6 percent after data showed US consumer sentiment rose to its highest in nearly six years in May.
A stronger dollar makes dollar-denominated assets like gold more expensive for holders of other currencies.
The market is now turning its attention towards the release of US ISM employment data next week, as these could give more cues on the Fed's future decisions, as well as the ECB policy meeting on Thursday.
"Next week will be closely watched by the market, as this is filled with key economic indicators in the United States and China and the European Central Bank policy meeting," Butler said.
PHYSICAL DEMAND SOFTENS
Rising gold prices, up more than 4 percent in two weeks, have deterred buyers in India and China, the top two consumers of bullion. There was a rush for gold in April when prices sank to a two-year low of $1,321.35.
Holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, remained unchanged at 1,013.15 tonnes on Thursday, after rising for the first time in three weeks on Wednesday. But these are still near four-year lows, having lost nearly 337 tonnes in 2013 so far.
Silver was down 1.8 percent to $22.30 an ounce, having touched a one-week high at $23.09 on Thursday. Platinum lost 1.4 percent at $1,467.74 an ounce and palladium was down 1.5 percent at $744.22 an ounce.
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