LONDON: Gold eased on Friday, set for its biggest weekly loss in two months, but prices were still in sight of recent 11-month highs as wider markets sought clarity on when and whether Spain would request a bailout to shore up its finances.
Standard & Poor's cut the country's credit rating to one notch above junk on Wednesday, while the country's economy minister said on Friday there was no political resistance to a bailout request for within the euro zone.
Spot gold was 0.1 percent lower at $1,766.24 per ounce at 1354 GMT. US gold futures were also lower at $1,768.0.
Bullion, which is seen as a hedge against inflation, briefly moved in positive territory as investors reacted to US data showing a greater-than-expected acceleration in producer prices in September.
But it soon returned to previous levels and looked set for a weekly decline of 0.8 percent, its biggest weekly drop in since Aug 5.
"It needs a little time to find a floor, which in the near term is likely to be $1,750, but I don't see a compelling reason for it to drop below that," said HSBC's James Steel.
VTB Capital analyst Andrey Kryuchenkov said the market was taking time to consolidate.
"Investors are very cautious; exchange-traded products are near record highs, long speculative positions are substantial," he said.
Further slippage could be on the cards as the market is lacking momentum, but loose monetary policy measures adopted by major central banks were expected to support prices in the long run.
A recent poll by Reuters found that analysts remain bullish on the outlook for gold.
Credit Suisse said on Friday it had raised its 2013 average price forecast for bullion to $1,840 per ounce from $1,720 per ounce. The bank also revised its forecast for silver to $33.10 from $29.20 per oz.
PHYSICAL BUYING SLOWS
In India, a softening rupee has pushed up local gold prices and is dragging on buying interest from elsewhere in the country.
Meanwhile, net gold flows from Hong Kong to China in August dropped 26 percent from a year earlier, as high gold prices and a slowdown in economic growth weighed on appetite, official Hong Kong trade data showed.
"China and India, as the world's largest gold consumers, are a big reason as to why gold has stayed high over the last year. But push the price too high and we then have to rely on speculative interest to sustain it, which is never a great way to keep a rally going," said David Govett, head of Precious Metals at Marex Spectron.
Holdings of gold-backed exchange-traded funds also fell for the first time in two weeks on Thursday, but were still close to a record high of 75.03 million ounces.
Among other metals, platinum was slightly lower in the absence of fresh news from South Africa, where industrial unrest has shuttered the operations of major platinum miners including Anglo American Platinum, the world's largest producer of the metal.
Spot platinum was 0.4 percent lower at $1,668.24 per ounce.
Wildcat strikes broke out in South Africa's platinum belt in August and quickly spread across other sectors of Africa's largest economy. Around 100,000 workers remain on strike, including 75,000 in the mining industry.
Palladium fell 0.9 percent to $657.81 per ounce.
Spot silver was lower at $33.79, heading for a weekly loss of 2 percent.
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