London - Gold prices eased back below $1 310 an ounce on Friday to head for a second straight weekly loss, as the dollar recovered from this week's seven-week low and uncertainty persisted over the outlook for US monetary policy.
Speculation that the Federal Reserve could start tapering its $85 billion monthly bond-buying programme knocked gold to a three-week low this week, but it rebounded on Thursday as a rally in platinum sparked broad-based buying of precious metals.
Its rise ran out of steam overnight as the dollar recovered from Thursday's low, however, curbing interest in commodities priced in the US unit. Uncertainty over Fed policy is likely to drive both the gold and forex markets, analysts said.
"With one obvious news story being discussed all the time, which is the progress towards, or lack of progress towards, tapering, there is an awful lot of opportunity for nervous investors to wait before choosing which side to bet on for gold," Mitsui Precious Metals analyst David Jollie said.
"That suggests that there is no single dominant sentiment towards gold today," he said. "In the short term, for most people, the actions of the Fed are their major concern related to the gold market."
Spot gold was down 0.3% at $1 307.06 an ounce at 11:37 and are on track to end the week around quarter of a percent lower. US gold futures for December delivery were down $3.20 an ounce at $1 306.70.
The Fed's quantitative easing policy, which has kept interest rates at rock bottom, cutting the opportunity cost of holding bullion, and stoked fears over inflation, was a key factor driving gold prices to record highs in recent years.
Gold fund reports outflow
Gold-backed exchange-traded funds saw further outflows on Friday, with holdings of the largest, New York's SPDR Gold , down 1.2 tonnes on Thursday.
Gold premiums in Hong Kong ticked up this week as prices fell below $1 300, stirring buying interest in the battered precious metal during a seasonally quiet period.
On the Shanghai Gold Exchange, gold of 99.99% purity was trading at a premium of $25 an ounce on Friday, compared with last week's close of $20.
"When prices dipped below $1 300, there were buyers in Hong Kong and China," said one dealer in Singapore.
Among other precious metals, silver was up 0.3% at $20.27 an ounce, while spot platinum was down 0.2% at $1 484.49 an ounce and spot palladium was down 0.2% at $734.72 an ounce.
Platinum is this week's best-performing precious metal with a gain of 2.7%, with prices driven higher by threats to supply from South Africa, source of three out of four ounces of the world's platinum.
The white metal extended its premium over gold to a two-year high of $178 an ounce in early trade.
Follow Fin24 on Twitter, Facebook, Google+ and Pinterest.