LONDON: Gold eased on Friday, under the weight of the stronger dollar, and was set for its largest weekly decline since mid-December after an aggressive sell-off earlier in the week, although investors showed no loss of appetite for the metal.
The strength in the dollar, which rose to nine-month highs against the yen and gained against the euro posed a headwind to gold, which tends to move inversely to the greenback as non-US investors can achieve more of a profit on their bullion holdings in their own currencies.
Gold is set for its largest weekly fall since mid-December after coming under intense pressure on the US futures market on Wednesday.
Federal Reserve Chairman Ben Bernanke issued a downbeat assessment of the US economy and reiterated the central bank's commitment to keeping benchmark interest rates near zero until at least late 2014.
No explicit sign from the Fed on the use of additional policy tools such as quantitative easing or anchoring longer-term bond yields to promote growth triggered the biggest sell-off in gold in 2-1/2 months.
Yet analysts and investors believe that gold has enough positive drivers to sustain the market over the coming year, which could see the price make new highs.
Spot gold was indicated 0.1 percent lower on the day at $1,715.30 an ounce by 1115 GMT, heading for a 3 percent decline this week.
"In the shorter term, we could see further weakness and we do advise our clients not to try to catch a falling knife," said Mark O'Byrne, director at online bullion market Goldcore. "We would wait until we have more clarity about the shorter-term outlook, but our medium- to long-term outlook is still positive on gold."
Highlighting the resilience of investors, holdings of gold in the world's largest exchange-traded products, one gauge for tracking shorter-term shifts in investor appetite for bullion, hit a record high above 70.76 million ounces, having witnessed their largest net inflows this week since early January.
"The broader macro backdrop remains gold-favourable, given the negative interest rate environment, longer-term inflationary concerns and lingering sovereign debt uncertainties," Barclays Capital said in a research note.
But dollar strength, broad risk reduction and profit-taking could pose near-term hurdles for gold, it added.
ECB CASH INJECTION
This week's half-trillion euro cash injection by the European Central Bank in the form of cheap three-year loans to commercial banks should, in the longer term, provide support to gold as it helps anchor euro zone lending rates.
Analysts said the European Central Bank's massive cash injection this week (LTRO) has made it more attractive to use the euro as a funding currency to buy higher yielding assets.
Gold priced in euros rose 0.4 percent on the day to 1,294.23 euros an ounce, but was still set for a 1.8 percent fall this week.
The decline across the precious metals complex has been felt more acutely in gold, which traded at a premium of just $10 to platinum, having boasted a premium in excess of $200 at the end of last year.
Platinum has benefited from concern about supply disruption in South Africa, while upbeat US auto sales data this week helped.
"I'm of the opinion that gold's premium over platinum should be corrected in due time, but I didn't expect it to come so quickly," said Yuichi Ikemizu, head of commodity trading, Japan, at Standard Bank.
The focus remains on Impala Platinum, the world's second-largest platinum producer, which has suffered 120,000 ounces of lost production in a six-week-long strike at its key Rustenburg mine. Operations there are set to resume next week but the company said it was still unsure when full production would be regained.
Platinum, which has lost just 0.4 percent in value this week, was up 0.3 percent at $1,701.49 an ounce.
Palladium fell 1.1 percent to $706.95 an ounce, while silver fell 0.80 percent to $35.16 an ounce.
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