Gold eases as dollar gains on strong US data, but eyes weekly gain

Gold prices inched lower on Friday as the dollar rebounded after robust US manufacturing data, although bullion was still on track to register a third straight weekly gain.

Spot gold eased 0.2% to $1,873.01 per ounce by 10:43 a.m. EDT (1443 GMT). But prices were headed for a 1.7% weekly gain, helped by subdued US Treasury yields. US gold futures fell 0.3% to $1,876.40.

Data showed US factory activity gathered speed in early May amid strong domestic demand.

"Strong economic data like the PMI does potentially have the opportunity to cause some short-term ripples in the gold market, based on the premise that the Federal Reserve could potentially reduce bond buying quicker than anticipated," said David Meger, director of metals trading at High Ridge Futures.

Wednesday's Fed minutes showed a "number" of officials were ready to taper monetary policy on continued economic recovery, although market participants shrugged off those concerns as they do not expect it to be imminent.

The dollar rose 0.2% against rivals, making gold expensive for other currency holders, while benchmark 10-year Treasury yields held at 1.63%, down from Wednesday's near one-week high of 1.69%.

"The bond markets show that they are leaning towards believing the Fed is going to be a lot slower in removing accommodation," said Edward Moya, senior market analyst at OANDA.

Lower US Treasury yields reduce the opportunity cost of holding non-interest paying gold.

"We believe gold may trudge higher as the negative impact of the Fed minutes wears off. That said, gold faces quite stiff resistance at $1,900/oz," HSBC said in a note.

Elsewhere, palladium fell 2.7% to $2,775.12 an ounce and headed for its biggest weekly decline since week ending Jan. 29, silver eased 0.9% to $27.47.

Platinum shed 1.4% to $1,179.80, on track for its second straight weekly decline.