Gold falls on dollar strength; set for first weekly gain in four

Gold edged down on Friday as the dollar strengthened, but was on track for its first weekly gain in four weeks on steady physical buying from China and exchange-traded funds.

Spot gold was down 0.3 per cent at $1,262.24 an ounce at 0342 GMT. It was set to end the week up nearly 1 per cent.

US gold futures fell 0.4 per cent to $1,262.90.

"Gold is well supported at $1,250 and everyone is waiting for the elections and the prices are just moving according to the dollar," said Yuichi Ikemizu, head of commodity trading at Standard Bank in Tokyo.

An interest rate hike by the US Federal Reserve has been already factored in the prices, Ikemizu said.

"Even if they raise rates gold will not go down steeply."

Fed policymakers have heavily tipped that the central bank will raise US rates in December.

The dollar index, which measures the greenback against a basket of currencies, was up 0.2 per cent at 98.469. It touched a new seven-month high of 98.564 on Friday.

Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar, in which it is priced.

Meanwhile, the European Central Bank on Thursday left interest rates unchanged, maintaining the parameters of its 1.74 trillion euro ($1.95 trillion) asset buying scheme.

Ultra-low rates tend to support gold, though that is often offset by a weaker euro. The single currency fell to its lowest since March against the dollar on Friday.

"ECB announcement saw a little movement in gold but the non event by president Mario Draghi kept everything reasonably mute," MKS PAMP Group trader Jason Cerisola said.

Data on Thursday appeared to indicate an improving US economy that would support a rate hike later this year. Home resales surged in September after two straight months of declines.

Other data showed a bigger-than-expected increase in the number of Americans filing for unemployment benefits last week, but the trend continued to suggest that the labour market remains strong.

Holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.31 per cent to 970.18 tonnes on Thursday. SPDR holdings have risen 2.3 percent so far this month.

"ETFs adding new positions show the investment demand for gold and this could probably prevent gold going below $1,250," Standard Bank's Ikemizu said.

Spot silver fell 0.6 per cent to $17.41.

Platinum was down nearly 1 per cent at $924.90. Palladium fell over 1 per cent to touch a low of $621.50, its worst since July 13.