Gold reversed gains in high volume on Friday, hit by a dollar spike after several top US Federal Reserve officials said the Fed is unlikely to extend its bond-buying stimulus program beyond a planned $600 billion.
Bullion lost nearly 2 percent following a brief rally to an all-time high $1,447.40 on Thursday, but the metal is set to post a small gain for the week as Portugal's credit downgrade and escalating political unrest in the Arab world underpinned safe-haven demand.
"Gold really took off last fall when the Fed launched QE2. So, negative comments (by Fed officials) has dampened investor sentiment in gold to some extent," said Peter Buchanan, senior economist of CIBC World Markets. Spot gold dropped 0.1 percent to $1,427.91 an ounce by 3:23 pm EDT (1923 GMT). US gold futures for April delivery settled down 0.6 percent at $1,426.20.
COMEX gold was one of the few actively trading commodity markets with volume already topping 250,000 contracts, one of the heaviest trading days year to date. Members of the more hawkish wing of the Fed, led by Philadelphia Fed Bank President Charles Plosser, said the central bank will have to reverse its easy money policy in the "not-too-distant future" to avoid sowing the seeds of inflation as the US economy is now on firmer footing.
Despite gold's recent strong performance, inflows into exchange-traded funds backed by the precious metal remained lacklustre, with holdings of the largest, New York's SPDR Gold Trust, down by another 0.9 tonnes on Thursday.
Silver gained 0.2 percent to $37.21 an ounce, having retreated from the previous session's 31-year high at $38.13 an ounce. Holdings of the largest silver ETF, the iShares Silver Trust, leapt to a record 11,140 tonnes on Thursday. Platinum dropped 0.2 percent to $1,744.49 an ounce, while palladium fell 0.2 percent to $747.22.
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